Bitcoin’s hashrate dropped significantly from its all-time-high, sitting at a rate not seen since November 2020.
According to data from blockchain.info, Bitcoin’s current hashrate is now (as of 21 June 2021) at approximately 110M TH/s, 30% below its all-time high of around 190M TH/s from a few weeks ago.
Bitcoin mining has been largely concentrated in China as miners were aggressively seeking cheap sources of electricity around the globe. According to blockchain.info, 65% of global bitcoin mining capacity was residing in China.
Overcapacity of (partly) renewable energy sources, especially hydroelectric power in the Chinese province of Sichuan, attracted miners to China. This is now backfiring. According to various sources, mining operations in China have had to shut down. As a result, Bitcoin’s hashrate is decreasing.
For instance, mining operations closed for inspection in Sichuan and Yunnan. Other Chinese provinces, such as Xinjiang, have taken similar steps to shut down miners. However, potentially only temporarily.
Why is Hashrate so Important?
“Hashrate” refers to the total combined computational power used to mine and process transactions on a Proof-of-Work blockchain such as Bitcoin.
A high hashrate is a general indication of a stable Bitcoin mining environment as more resources are deployed to the Bitcoin network to process transactions. It also means that miners are expanding their operations due to their increasing confidence in the network. Additionally, the higher the hashrate, the more resilient the network is to attacks such as the “51% attack”.
But Bitcoin’s hash rate has not been relevant when predicting its price and the correlation between changes in bitcoin’s price and the hashrate has fluctuated around zero despite some arguments that price follows hashrate or hashrate follows price.[1]
Source: Iconic Funds GmbH, blockchain.info
Source: Iconic Funds GmbH, blockchain.info
Source: Iconic Funds GmbH, blockchain.info
Mechanics of Bitcoin to Balance New Issuance
Bitcoin is a perfectly oiled machine to weather the fluctuation of mining equipment being added to or subtracted from the network.
Through the “difficulty adjustment,” the Bitcoin protocol ensures that miners mine a new block – on average – every 10 minutes.
Source: Iconic Funds GmbH, blockchain.info
The Takeaway for Bitcoin Investors
Even with the sharp decline of hashrate committed to the Bitcoin network, long-term investors can ignore the China mining FUD.
- Firstly, the Bitcoin protocol will continually balance itself. The new issuance of bitcoin remains unaffected.
- Secondly, miners will move to other jurisdictions, potentially with more political reliability.
- Thirdly, global bitcoin adoption as a store of value, medium of exchange, and unit of account is on full display. In a most recent example, the dollarized Latin American country El Salvador has made bitcoin legal tender, making it the first country to accept bitcoin as official currency and inspiring other nations such as Paraguay to follow suit.
Is Bitcoin’s Carbon Footprint Improving?
Chinese bitcoin mining links in with to China’s dependency on fossil fuels. According to the U.S. Energy Information Administration (EIA), coal-based energy sources contributed 58% to China’s carbon footprint in 2019.[2]
A side effect of hash power moving to other jurisdictions could be that the perception of Bitcoin’s carbon footprint as well as the factual carbon footprint of bitcoin may improve.
Other jurisdictions that have already courted Chinese miners may have a less carbon-heavy energy mix, thereby improving the overall carbon footprint of bitcoin mining.
Related Articles
- Analyzing the Primary Value Drivers of Leading Cryptocurrencies
- The Impact of Crypto Currencies on the Sharpe Ratio of Traditional Investment Models
- Investigating the Myth of Zero Correlation Between Crypto Currencies and Market Indices
Legal Disclaimer
In no event will you hold ICONIC HOLDING GMBH, its subsidiaries or any affiliated party liable for any direct or indirect investment losses caused by any information in this article. This article is not investment advice or a recommendation or solicitation to buy any securities.
ICONIC HOLDING GMBH is not registered as an investment advisor in any jurisdiction. You agree to do your own research and due diligence before making any investment decision with respect to securities or investment opportunities discussed herein.
Our articles and reports include forward-looking statements, estimates, projections, and opinions which may prove to be substantially inaccurate and are inherently subject to significant risks and uncertainties beyond ICONIC HOLDING GMBH’s control. Our articles and reports express our opinions, which we have based upon generally available information, field research, inferences and deductions through our due diligence and analytical process.
ICONIC HOLDING GMBH believes all information contained herein is accurate and reliable and has been obtained from public sources we believe to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind.
