The Bitcoin network’s foundations appear to be more resistant to attacks on miners’ operations than they have ever been.
Last week, Bitcoin (BTC) achieved a new all-time high for hash rate, but experts are divided on whether the increase can be sustained.
In a March 21 Twitter conversation, Preston Pysh, host of The Investor’s Podcast, looked for signs of a new hash rate “lull” in Bitcoin’s hash ribbons indicator.
There are concerns about a “lull” in the hash rate following record highs.
According to estimations from monitoring resource MiningPoolStats, Bitcoin has overcome significant odds over the last year to see the processing power dedicated to mining — hash rate — reach a massive 222 exahashes per second (EH/s) this month.
After China sparked a large migration of miners, Kazakhstan’s crackdown on mining centres this year put the cat among the birds in terms of miner activity.
Nonetheless, on both occasions, a full recovery occurred, validating the notion that mining will come back stronger than ever before as long as there is at least one “friendly” jurisdiction for miners.
Hash ribbons employ two simple moving averages (SMAs) of hash rate to gauge miner health, and have been used to predict when potential price bottoms are approaching.
Miners have a breakeven cost for manufacturing each Bitcoin, and if the spot price falls below that, the risk of them “capitulating,” or ceasing operations owing to a lack of profitability, increases. This has the unintended consequence of lowering price performance, necessitating a change in Bitcoin network difficulty to reduce miners’ production costs in bulk.
When the 30-day SMA crosses below the 60-day SMA on hash ribbons, it indicates that a capitulation event — at least substantial enough to measure — has occurred.
“A simple 1- and 2-month simple moving average of Bitcoin’s hash rate can be used to detect market bottoms, miner capitulation, and even better fantastic chances to buy Bitcoin,” wrote Charles Edwards, the metric’s creator, in a blog post in 2019.
“The worst of the miner capitulation is often over when the 1-month SMA of Hash Rate crosses over the 2-month SMA of Hash Rate, and the recovery has begun.”
This time, events in Kazakhstan may have acted as a catalyst for a capitulation event, but hash rate growth has already negated the effect.
“The margins are still quite good. The cost of production is in the low to mid-thirties. “Electrical (operating) costs are in the low 20s,” Edwards responded to Pysh, citing Blockware analyst Joe Burnett’s notion.
“I believe (Burnett’s) thinking on Kazakhstan is the most logical. So, given the broader macro/market strength, probably a slight capitulation.”
Difficulty is expected to reach new highs.
It’s not just hash rate that’s on the rise: mining difficulty is also on the rise, with a winning streak poised to resume this month after a brief period of consolidation.
The difficulty, which is the most crucial of Bitcoin’s fundamental metrics, is expected to rise by 4.66 percent during the next automated readjustment in eight days.
The last two readjustments were both negative, but only by a small margin, implying that the upcoming increase will push difficulty to new all-time highs of 28.73 trillion.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.