TokenInsight: Miners tend to hold Bitcoin in the short term, and the cost of 51% attack has not decreased

Original title: "After the 312 crash, miners tend to continue holding Bitcoin"
Written by: TokenInsight

In mid-March 2020, due to the sharp decline in the Bitcoin market, some Bitcoin miners were forced to temporarily shut down their mining machines. The withdrawal of these mining machines from the market directly caused the computing power (hash rate) of the Bitcoin network to plummet from the historical high of 136EH/s to the recent low of 75.8EH/s. The market has rebounded recently, and the hash rate of the Bitcoin network has gradually stabilized at around 100EH/s. Compared with before the plunge, the mining difficulty of the entire Bitcoin network has dropped by about 16%, which is the second largest difficulty reduction in history, second only to the largest drop of 31.5% in December 2018.

As the price of Bitcoin plummeted to historically rare levels, the average block time increased from about 10 minutes per block to 15 minutes per block before the Bitcoin network began adjusting its difficulty.

Daily MRI shows miners prefer to hold Bitcoin in the short term

MRI (Miner's Rolling Inventory) is a concept proposed by Charlie Morris on ByteTree in 2020. It is an indicator to measure the changes in the inventory level of Bitcoin held by miners, providing a valuable reference for miners to understand the market situation. MRI above 1 means that miners are selling more Bitcoin than they are mining, and their inventory is insufficient. On the contrary, MRI below 1 means that miners are hoarding Bitcoin.

As shown in the figure below, before the Bitcoin market crash (March 11, 2020), the MRI indicator (>1) reflected that miners at the time were more inclined to sell their Bitcoin holdings. When Bitcoin fell to its lowest price and stabilized, the daily MRI dropped significantly and is currently basically below 1. This shows that after the Bitcoin crash, miners' views are completely different from before. Miners at this stage are more inclined to increase their Bitcoin inventory. At the time of writing this article, the value of the daily MRI indicator has returned to around 1.

However, judging from the 1-week, 5-week and 12-week MRI indicators, the market is still bullish on Bitcoin in the long run, and miners will slowly resume their selling tendency before the Bitcoin crash.

Fee Crossovers Indicate Growing Demand on the Network

Although the recent market downturn has caused some miners to temporarily shut down their mines, resulting in a mining difficulty reduction of about 16% in the market. According to Charlie Morris's research on Fee Crossover published on the ByteTree website in 2020, when the 1-week moving average network transfer fee exceeds the 52-week relative fee, it can indicate a bull market, and vice versa.

Currently, the moving average network transfer fee in the market in the past week is slowly climbing to near the 52-week moving average fee. This phenomenon reflects that the Bitcoin network activity is becoming more active and is a sign of positive market performance.

SOPR shows that a large number of Bitcoin holders are currently selling at a loss

The SOPR ratio (Expenditure/Output Profit Ratio) developed by Renato Shirakashi is one of the useful indicators to measure people's emotions and behaviors. When SOPR>1, it means that the owner of Bitcoin makes a profit when trading; otherwise, it loses money. During the market downturn, the SOPR ratio dropped significantly to between 0.95-0.96, and when the market stabilized later, SOPR increased slightly. However, it will take some time for the SOPR ratio to truly return to the level of 1, and market participants are still waiting and hoping to sell their Bitcoin holdings after the market returns to the break-even point.

51% attack cost reduced? NO!

Data source: Messari

According to the latest data from Messari, the theoretical attack cost of the Bitcoin network has dropped significantly in the past 24 hours and is currently about $14 million. The reduction in the theoretical attack cost has caused some concerns in the market about the security of the Bitcoin network, but due to the following reasons, attackers cannot obtain enough computing power to complete the operation of attacking the network, so it is actually impossible for anyone to launch a 51% attack on the Bitcoin network.

1. With only ~0.3% of the hashrate being rented from NiceHash, if an attacker were to gain the hashrate, they would still need to obtain 99% (~0.3% / 51%) of the hashrate from NiceHash alone to conduct a 51% attack.

2. The cost of the attack depends on the market price of renting the required hashrate on NiceHash. The market price of hashrate changes with the market conditions of the digital asset, and the supply and demand of the hashrate available in the market.

3. Since the time and economic cost of obtaining such a huge hash value are very high, no one in the market is willing and it is difficult to attack the Bitcoin network by fully controlling 51% of the computing power.

From the above three points, it can be seen that no matter how much the mining difficulty is reduced, no matter how much the attack cost is reduced, the risk and operability of the Bitcoin network suffering a 51% attack are very low.