What is the reason for the decline in hash rate, and can it provide room for price rebound?

The hash rate of a cryptocurrency is a measure of the number of calculations a given network can perform per second. Although a high hash rate makes competition among miners more intense, it increases the number of resources needed to resist a 51% attack, making the blockchain network more secure.

Recently, the hash rate of the Bitcoin blockchain network has dropped significantly, and the downward trend may not be over yet and will continue. According to the data shown by Blockchain, the hash rate of the Bitcoin network has dropped from a peak of 136.2EH/s on March 1 to 75.5EH/s on March 26. Coin Dance also reported similar findings: in just 10 days, the hash rate of Bitcoin has dropped by 29% from a peak of about 150EH/s on March 5 to 105.6EH/s. The decline in the hash rate has led to a large number of miners leaving and caused a series of chain reactions. Therefore, many people have linked the decline in the hash rate to the plunge in the price of Bitcoin.

In fact, we all know that the market decline is definitely not affected by a single factor, but should be the result of multiple factors, such as the upcoming halving and the sudden epidemic, which have contributed to the turmoil in the crypto market. However, the departure of miners is indeed directly related to the changes in hash rate and mining difficulty.

Historically, hash rate and mining difficulty have always been the trend leaders of the "miner capitulation cycle". When the price of coins remains high, mining can be profitable; when mining difficulty increases and equipment power is insufficient, miners will sell their assets to continue mining; when miners lose their competitiveness, they will exit the market, and the hash rate will also drop. However, there are different views in the industry on what exactly causes the hash rate to drop.

Some people believe that the departure of miners has led to the decline in hash rate. For example, Walter Salama, chief compliance officer of mining company Bitpatagonia, is a supporter of this view. He believes that many small and medium-sized mining companies that are being forced to close have made the same mistake. They sell and trade with very high equipment costs and when the price of the currency is attractive, they hold the mentality that Bitcoin will never stop falling, which makes them have no inventory and are forced to sell to survive.

Pierce Crosby, general manager of TradingView, explained: A large part of the fluctuation in hash rate is based on the programmed price limits set for different mining equipment. Due to the mathematical principle of hash rate rewards, the lower the price, the lower the profit, so these miners may slow down until the price rebounds and the profit margin increases. As the difficulty decreases, the capitulation cycle of miners ends the whole process, and this situation may continue until only the strongest are left, which also highlights a fundamental flaw in the Bitcoin network.

Of course, there are also many experts who disagree with the above view, believing that the decline in Bitcoin hash rate has little to do with miners' capitulation. Donnell Wright, a compliance consultant in the industry, said: He does not think that what is happening now is miners' capitulation, especially when Bitcoin is approaching halving. Because according to previous data, Bitcoin prices usually rise sharply after halving, and capitulation now is very unwise and disadvantageous, so he does not think this is happening now.

Wright also believes that the decline in the Bitcoin network hash rate may be due to miners competing with newer technology, so they are now forced to temporarily shut down their equipment for upgrades. In addition, depending on the region, the new coronavirus may also be one of the reasons for the suspension of mining operations. In short, Wright does not believe that miners will leave before the halving, so the hash rate will not drop for this reason.

Vector Moranov, a member of the Bitcoin Foundation, agrees that miners have caused a short-term drop in the hash rate, but he believes that the root cause is the coronavirus. Sidharth Sogani, founder and CEO of Crebaco, also agrees with this view, and even said that it is the shutdown of miners and production-related equipment companies in my country due to the epidemic that has caused the hash rate to drop, because more than 30% of mining activities take place in China, and the virus has prevented my country's mining facilities from operating at optimal capacity.

However, while some see the falling hash rate as a sign of underlying network weakness, it could actually be a sign that Bitcoin is poised for a significant rebound in the near term. A decline in hash rate would reduce selling pressure from miners, giving the benchmark cryptocurrency a big bounce.