Bitcoin (BTC) hashrate has decreased by 30% in the last three days in line with the predictions made by industry insiders. Before the halving, CryptoNewspeople surveyed a number of industry insiders about their expectations for post-halving changes in hashrate.
Costs of Bitcoin mining
The halving of the block reward erodes Bitcoin miners’ revenue, reduces their margins, and sometimes even makes operations unprofitable at a given difficulty level. Whereas revenue per given hashrate is the same for all miners, the costs they incur will vary greatly. For Bitcoin miners, by far, the biggest cost driver is the cost of electricity.
Bitcoin Hashrate. Source: Glassnode.
The price per kilowatt-hour may be constant in a particular location, but it will greatly depend on the efficiency of the mining equipment that a miner employs. Later generation mining equipment generates more hashpower at a given energy consumption rate. Thus, even if two Bitcoin miners pay the same price per kilowatt-hour, their real costs may be different.
More Bitcoins in strong hands
Miners who run old equipment or have high electricity costs may be forced to at least temporarily shut down their operations. Some may rejoin the network once there is a downward difficulty adjustment. This will benefit the remaining miners who will be mining more Bitcoin per given hashpower output. It should also have a positive effect on the market, as the remaining miners will have to sell fewer coins to fund their operations. Matt D’Souza, CEO and co-founder of Blockware Solutions, emphasized this point:
“So you can see potentially twenty-five — thirty-five percent of the network shut off and now twenty five to thirty five percent of the Bitcoin they were receiving, it now goes to whoever survives. So whoever survives is going to do very well. They’re going to accumulate a ton of Bitcoin and therefore they don’t have to sell as much Bitcoin to pay their electricity bills to buy more machines. More Bitcoin will start getting accumulated by very strong hands, very experienced miners, very efficient miners, rather than being sold to cover expenses.”
Christopher Bendiksen, head of research at CoinShare, echoed the same sentiment:
“According to our estimates and these estimates are a little bit dated, is that there’s about 30-ish percent of the hashrate is previous generation gear. So it’s more or less 30 percent of the hashrate that’s at risk.”
A representative from RRMine, a global platform for hashrate trading platform, voiced a similar thought:
“We infer that the outputs of miners who keep booting from March will increase by about 21% before the halving, while on the day of the halving, the miner’s outputs will only temporarily decrease by about 29%. Therefore, miners who survived the halving will see a big increase in their production, which may be 11% higher than the previous outputs.”
Electric grids are like Bitcoin network
Philip Salter, head of operations at Genesis Mining, discussed whether the decrease in demand in electricity due to the ongoing economic crisis would drive electricity prices down. He said the electric grids operate just like the Bitcoin network, where operators may drop off the grid depending on the price:
“I’d say that you’re probably right that power prices should drop, but then when the power prices drop, electricity generators will drop off the network because the electricity price will be under the operating margin.”
Alex Mashinsky, CEO of Celsius Network (CEL), told CryptoNewspeople that while his company has experienced a strong inflow of Bitcoin deposits, he expects some smaller miners to sell off their inventory. He believes that this could cause a short-term nose-dive in the price, but remains extremely bullish long-term:
“The PR will die off in the next week so we should see selling win over in the short term but new highs in the long term in Q4.”
Summing up what our experts have said, paradoxically, the temporary decrease in the hashrate may be a bullish sign for Bitcoin.