Bitcoin hash rate doubles despite 80% price drop

The crypto markets have had a difficult year with mainly large sell-offs over the past few months. However, according to Wall Street investment firm Fundstrat, Bitcoin's hash power (BTC) has doubled over the last 4 months. In his tweet Sam Doctor, analyst at Fundstrat, explains that 'breakeven' is now higher than before:

“Despite the BTC bear market, hash power has doubled since May to 57 EH / s - even with upgrades to existing equipment means almost 1GW of energy consumption vs. 5.2GW in May '18. Breakeven now at $ 7,300 ($ 5,300 cash BE) vs. $ 6,000 in May - mining becomes FCF -ive”

Fundstrat's head of research Thomas Lee confirms the results of the Dcotor. According to Lee's earlier comments, BTC often trades the break-even value around its entire history 2.5 times. A possible indication of an upside for BTC.

Despite the fact that crypto prices have dropped by more than 80% in the past year, the activity continues to grow exponentially. How difficult it is to mine is determined by how easy it is to find a 'hash'. This, in return, coincides with the hash rate of the most dominant cryptocurrency. For example, if fewer people are mining BTC, the hash rate will drop and mining will also become easier and vice versa.

If it becomes more difficult to mine, it is also more difficult to find a block, which also reduces the turnover of miners. Given that the turnover per block is adjusted every 4 years, there will often be a disproportion in the turnover generated by BTC mining. This because of the constant change of the complexity.

With a constant turnover per block but an increasing degree of complexity of mines, less BTC will be obtained per miner. If BTC prices fall, this will further disadvantage the miners. It is therefore expected that with a fall in prices of BTC the hash rate will also go down.

The increase in hash rate over the last 4 months is therefore in contrast to the decrease in BTC price by more than 80%. Miners are thus still prepared to further expand their operations. This is despite the lower turnover and profit margins that miners achieve in a bear market.

In a recent blog post BitMEX said that this is probably a strategic maneuver of Bitmain, the largest miner in the crypto sector. According to BitMEX, Bitmain maintains a low profit strategy in order to be able to squeeze the competition out of the market. According to BitMEX, the continuation of the strategy is also the likely reason behind Bitmain's IPO.

The increase in hash rate provides good news for Bitcoin. It shows that the miners still have enough confidence to continue or even expand their operations. This also makes the BTC network stronger and more resistant to attacks.