The past week has been pretty rough for investors as bitcoin price tumbled below $4,000 along with the traditional stock market. Fortunately, bitcoin has since decoupled from the S&P 500 and rallied back above $6,000.
However, it appears that bitcoin miners -the people responsible for keeping the bitcoin network secure- were unable to weather the storm. This is evidenced by the bitcoin network hash rate which has retreated below 100 exohashes per second after reaching a high of 133 exohashes per second on March 7, 2020.
Notably, one of the most popular bitcoin aficionados, Max Keiser, has always asserted that the bitcoin price follows the trend of the hash rate. Going by Keiser’s theory, could this decline in hash rate negatively impact the bitcoin bulls presently gathering upward momentum?
Bitcoin Is Slowly Decoupling From Equities
Last week’s “Black Thursday” will forever be ingrained in the memories of true bitcoin followers. This is because the OG crypto dropped almost 50% to below $4000 within the span of hours. The crash came as investors contemplated the possibility of the world plunging to a recession due to the raging coronavirus.
But since that day, bitcoin has regained more than 42% of its value as it climbed back above $6,000 on Thursday (March 19). The top cryptocurrency rallied by over 10% to as high as 6,430 before stabilizing at the $6,294 level at the time of publication. The S&P 500 is also up but its gains pale in comparison to bitcoin’s rally.
It’s worth mentioning that the markets’ recovery came after the European Central Bank (ECB) announced an emergency 750 euro (roughly $820 billion) stimulus package to combat the economic fallout from the coronavirus pandemic.
Bitcoin Hash Rate Down To December 2019 Levels
Nonetheless, the steep drop in price seen last week led to many miners operating way below break-even with most of them shutting down their rigs en masse. This has resulted in a sharp decline in bitcoin’s computing power. Per data provided by Glassnode analytics firm, BTC’s hash rate is down more than 16 percent since hitting over 130TH/s on March 7.
It goes without saying that bitcoin mining is an expensive operation as it requires electricity and powerful mining machines. At the lows witnessed on March 12 and March 13, the mining process was economically unviable for most miners.
Bitcoin’s hash rate stood at 82 quintillion hashes per second as of March 18, 2020, according to data from Blockchain.com. Such levels were last seen in December last year. It might suggest that a majority of the miners closed their operations as they are no longer making any profits. If bitcoin does not recover to pre-crash levels above $8K, more miners are likely to ditch the network in the near-term. This is not good, especially with a reward cut on the horizon.
Is The Drop In Hash Rate Bad News For The Bitcoin Price?
Besides the hash rate, bitcoin’s difficulty is also expected to drop by between 14.0% and 12.4% this coming Wednesday. This massive negative adjustment is devastating especially for miners operating small rigs. The large miners are likely to continue with their operations while the smaller ones are weeded out.
To make matters worse, the rewards received by miners for verifying transactions are set to reduce by half in May. Miners are currently receiving 12.5 BTC, but they will be receiving 6.25 BTC after BTC’s third mining-reward halving.
A miners exodus jeopardizes the security of the bitcoin network. The more the miners on the network, the more secure the network is and the less the miners, the less secure the network is. As such, when there are fewer miners, the bitcoin network is at risk of being attacked by bad actors.
In essence, bitcoin’s price has to stage a spectacular rally before halving for the miners to stay on the network. And with all the central banks printing money out of thin air and the coronavirus-fueled financial crisis, a moonshot might be long-overdue.