Previously, we discussed the initial impact of Chinese miners on the “China mining ban” in our article from June 21, 2021. After almost two months it is now time for an update on Bitcoin’s Hash Rate.
It has become quite clear that – after years of fake news on this topic – China seems to have finally banned bitcoin mining officially this time. As mentioned in our last article, long-term investors can safely ignore any FUD (“fear, uncertainty, doubt”) coming out of China. The Bitcoin network is resilient, robust and antifragile. While the hash rate has indeed decreased as miners are either packing up their ASICs and moving or giving up their business altogether, the difficulty index has adjusted downward, making it easier for existing miners to find new blocks and keep the block time at approximately 10 minutes.
Source: Iconic Funds GmbH, blockchain.info
According to raw data from blockchain.info, the total hash rate dropped by approx. 55% but has already recovered by approx. 40% from the localized low. The Bitcoin Mining Council estimates that the total hash rate dropped by around 45.5% in Q2 2021.
Meanwhile, China’s share of the bitcoin mining network has decreased substantially. The Cambridge Centre for Alternative Finance estimates that China’s share is now well below 50% and dropping.
Source: Iconic Funds GmbH, Cambridge Centre for Alternative Finance
According to other sources, 20% of Chinese miners (roughly 10% of the total hash rate) have left the country. The major recipient of this hash rate migration initially seems to be North America, where rack space, secondhand mining equipment and spare energy are now in high demand. One North American miner is observing new electricity deals way above market power prices. “What used to be a four or five or six cent rates, all of a sudden is a 9, 10, 11 cent rate.” This migration already has an impact on Bitcoin’s carbon footprint, as the energy mix in the US and Canada are far more renewable-heavy (source).
Lastly, the bitcoin price has already recovered more than 50% from its low in July 2021.
Source: Iconic Funds GmbH
While it is commonly accepted, that neither bitcoin price drives hash rate nor does hash rate drive the bitcoin price, it may be that the tail ends (large price moves during a short period of time) may indeed incentivize miners to add (or retire) mining equipment as mining becomes significantly more (or less) profitable.
As concluded in our original article, investors were well-advised to ignore the China FUD, as they are similarly well-advised to ignore any FUD. Bitcoins well-oiled protocol adjustments (i.e. difficulty adjustment) lead to a migration in global hash rate that has the potential to further defuse the carbon footprint discussion around bitcoin. Miners are indeed relocating to jurisdictions that have a more renewable-heavy energy mix.
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