Data shows that Bitcoin mining has fallen by about 10% since its all-time high (ATH). Here’s what might be behind the trend.
Bitcoin mining hash rate has seen a sharp decline recently.
The “mining hash rate” is a metric that tracks the total amount of computing power that miners as a whole are connecting to the Bitcoin network. The metric is measured in terms of hashes per second (H/s) or, more practically, in terahashes per second (TH/s).
Since BTC operates on a Proof-of-Work (PoW) consensus mechanism, miners naturally pool this computing power to solve mathematical puzzles and compete against each other for a chance to add the next block to the network.
The incentive to compete on the network in this way is that the miner who adds the next block receives the block reward, a combination of transaction fees and block support, as compensation.
Therefore, for any miner, mining is only profitable if the reward is greater than the cost of electricity spent to run his facilities. Whether miners as a whole are under pressure or in a comfortable position at the moment can be inferred from the trend in mining hash rate.
When this indicator increases, it means that new miners are joining the network and/or old miners are expanding their facilities. This trend indicates that blockchain technology appears to be profitable for these validators.
On the other hand, a metric that is declining indicates that some miners no longer find BTC mining profitable, so they have decided to disconnect from the network.
Now, here’s a chart showing the trend in the average Bitcoin mining hash rate over the past 7 days over the past year:
Looks like the 7-day value of the metric has plunged in recent days | Source: Blockchain.com
As shown in the chart above, the 7-day average Bitcoin mining rate saw a spike earlier in the month and hit a new all-time high above 693 TH/s. However, in the week following this peak, the indicator saw a rapid decline of around 10%, bringing its value to 628 TH/s.
The answer to why this trend is happening may lie in the recent Bitcoin price action. As mentioned earlier, miners earn their income through the block reward, which consists of transaction fees and block support.
Of these twoComprehensive support constitutes The main part of their revenue. One of the features of the blockchain is that the block support remains fixed in BTC value and is also granted at a fixed time period, which means that the only variable associated with it is the price of the coin in US dollars.
Therefore, Bitcoin miners’ revenue is directly related to the spot value of Bitcoin. As such, the previous spike in the hash rate to an all-time high was surprising, as Bitcoin was declining when it happened.
It is possible that miners were betting on a price recovery in the near future, but since it clearly did not happen that way, they decided to disconnect some devices from the network, which is why the 7-day average hash rate saw a sharp decline.
Bitcoin price
At the time of writing, Bitcoin is trading at around $58,600, up over 6% from last week.
The price of the coin appears to have overall moved sideways in the past month | Source: BTCUSDT on TradingView
Featured image by Dall-E, Blockchain.com, chart by TradingView.com