The miners' mood has improved. Is the mine disaster coming to an end?

What do you think when you see the picture above?

The above chart shows the trend of Bitcoin hash rate over the past two years, from April 2017 to March 2019. What do you find? That’s right, today’s Bitcoin hash rate, the computing power that protects the entire network, has reached its highest level since early November 2018.

If you analyze further, you will find that compared to the time when the price of Bitcoin reached its historical high of $20,000 in December 2017, the current network hash rate is more than four times that time!

In fact, it has only been four months since the Bitcoin mining accident. Does this mean that the market has begun to recover?

Many people will not forget what happened in November last year. At that time, the price of Bitcoin fell from $6,500 to around $3,600 in just ten days, approaching the shutdown price. This wave of market conditions once caused a quarter of the mining power of the entire network to shut down, and many miners began to sell mining machines at low prices. At that time, Atulya Sarin, an American financial industry expert and professor of finance at Santa Clara University, also published a column in MarketWatch, introducing the concept of "mining death spiral" for the first time and claiming that Bitcoin would become worthless.

The so-called "mining death spiral" refers to when the price of the entire cryptocurrency falls, causing the price of mined Bitcoin to be lower than the total mining cost, and the least efficient miners have to shut down their mining equipment to avoid operating at a loss. However, as more and more miners are "driven out" of the market, the hash rate of the entire network will also decline. Once the computing power continues to decline and the market loses confidence, it will trigger a large number of investors to short Bitcoin in the futures market, which will in turn exacerbate the rapid fall of prices, forming a vicious cycle similar to a death spiral.

But in fact, Bitcoin seems to have begun to respond to this negative impact by adjusting the difficulty of mining. Every miner who is forced to shut down his mining machine will increase the profitability of the remaining miners. In other words, there are still many miners who will continue to stay on the Bitcoin network to mine and confirm transactions - the data will not lie. According to data from Bitnodes, the number of transactions confirmed by miners on the Bitcoin network has increased every day since February 2018, and the number of nodes has increased by 98% in the past two years.

Miners' optimism is back!

According to data disclosed by Blockchain.com, Bitcoin hash rate has risen to more than 52 quintillion hashes/s on March 19. (Note: Quintillion is the cube of one million, 1 EH/s is 1,000,000,000,000,000,000 (a quintillion) hashes per second.) Undoubtedly, hash rate is an important indicator for evaluating the performance of Bitcoin miners. Simply put, the higher the hash rate, the more secure the network is, because hackers need to spend more resources and costs to attack the network.

On the other hand, as shown in the above figure, the difficulty of Bitcoin mining has remained relatively stable over the past month, which means that it will be easier for miners to deploy mining machines on the network for mining, and this will also attract more new miners to enter the market. The result is to stimulate the hash rate to rise.

Of course, the recent rise in Bitcoin prices is another important factor. In early February this year, the Bitcoin network hash rate layer reached a peak of 50,000,000 TH/s, and has been showing a downward trend since then. As prices gradually recover, this downward trend will be broken, and it is even getting closer and closer to the highest hash rate record of 62,000,000 TH/s set in August 2018.

It should be noted that hash rate is an important indicator for assessing the sentiment of miners on a cryptocurrency network, because only when miners are confident in the future of the network will they be willing to invest funds to operate mining operations, which will also allow the network to be more protected and more secure.

Jameson Lopp, CTO of cryptocurrency hosting service Casa, believes that miners have already sensed that the price of Bitcoin will rise in the future. At this stage, the price of Bitcoin has experienced four consecutive weeks of rise, and many miners are ready to make a comeback. Jameson Lopp further explained:

“Some people think that price follows hashrate, but this is not the case. Hashrate follows price trends. In fact, computing power does not always track spot prices. It reflects more future speculative prices. Miners are essentially market speculators.”

The recovery of the Bitcoin network hash rate also shows that the unfounded concerns about the "mining death spiral" caused by the price crash at the end of last year can now be put to rest. Now, more and more miners are coming online, pushing up the network hash rate, and also showing that they are full of confidence in the current Bitcoin spot price profitability and future market expectations.

The bear market is a very difficult period for miners, but as the market gradually recovers, the long suffering seems to be coming to a light at the end of the tunnel. As the most important part of the global miners, Chinese Bitcoin miners are planning to effectively utilize the upcoming flood season in the summer to obtain more competitive electricity prices.

However, Planet (WeChat: o-daily) would like to remind everyone that although cheaper electricity prices are available and the overall market sentiment is good, the biggest risk for miners is still the potential price drop. According to previous industry insiders, if the price of Bitcoin falls to $3,000, then the "miserable world" of miners may really come. At this time, even if potential losses can be hedged by shorting Bitcoin futures contracts, if there are not enough counterparties to take long positions at that time, the losses of miners cannot be hedged.

But given the current market environment, how could miners give up the opportunity to “make back their investment”?