After the May 11 halving, some skeptics speculated that the miners would capitulate or that the whole process would go into a „death spiral. Three months passed very quickly and the Bitcoin hash rate (BTC) is at a record high.
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A hash rate at an all-time high and the stability of the Bitcoin mining industry are positive signals for the medium- and long-term trend of BTC.
A rising hash rate is a good thing for Bitcoin
According to Glassnode data, the difficulty of Bitcoin mining increased by 3.6% on August 24th and is now at a new high. The data shows that many miners are actively mining BTC, even more than before the halving occurred.
Although the Bitcoin hash rate has continuously reached new historical highs over the years, this time it’s slightly different due to timing.
Three months ago, Bitcoin experienced its third hash reduction for every mined, or halved, block in its history. Due to the fixed supply of 21 million, the average to which the remaining supply will be mined is halved every four years through halving.
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As such, miners earn 50% less Bitcoin every four years, despite spending an increasing amount of money on electricity and various operating costs.
In theory, an increase in the price of Bitcoin should compensate for the lower earnings of the BTC miners. But, the price of BTC would have to double in the short term to make mining more attractive.
The rapid recovery of the hash rate from the halving and a difficulty at an all-time high suggest that miners are anticipating a strong short-term trend in the Bitcoin price.
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Another reason behind the increase in the hash rate could be the profitability of the miners in China. Sichuan province is currently going through the rainy season and the abundance of hydroelectric power plants in the region allows miners to obtain cheaper electric power, which in turn reduces their overall costs.
Mining Store CEO JP Baric said:
„Bitcoin’s profits from mining with state-of-the-art hardware range from $70/MWh to over $200/MWh, depending on price, overall hash rate and difficulty. Currently, energy is generated at a price of USD 17/MWh in a natural gas plant. Do the math“.
The confluence of cheaper electric power in China and the optimistic stance of the miners on the price of BTC seems to be catalyzing the hash rate.
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Sarcastically implying that the mining sector is nowhere near capitulation, Rafael Schultze-Kraft, technical director of Glassnode, said:
„The difficulty has increased by 9% since the halving. Mining capitulation“.
The term „mining capitulation“ refers to the phase in which most small and over-leveraged miners cease their activities. Capitulation could cause the Bitcoin hash rate to decrease substantially in the short term, but since May there hasn’t been a noticeable decrease in the Bitcoin hash rate.