BTC Hashrate Reaching All-Time High and Miner Revenues All-Time Low
Glassnode data shows record highs for Bitcoin hashrate output and mining difficulty, but bearish results for mining revenue.
BTC hashrate at all-time high
The BTC hashrate is the measure of Bitcoin network output through the amount of proof-of-work miners are able to generate in a certain amount of time. The more hashrate being generated, the more computational power is being directed to the network, which also means higher energy consumption and more devices actively working.
This increase in production not only brings new expenses to miners increasing their production capacity, but also affects all other miners, as the network difficulty increases to keep the production of blocks in the protocol interval of about 10 minutes.
Typically, a BTC hashrate increase is indicative that miners are bullish about the next few months regarding the price of bitcoin, as investment growth is done with the expectation of gathering the rewards at some point.
No one is quite sure when the downtrend reversal of recent quarters will surface, but some data from Glassnode shows that big miners seem to believe it will happen very soon, as not only the BTC hashrate and the difficulty of mining reached all-time highs (beyond even the 2021 price top), but profitability by Exahash has reached historic lows.
So miners are at a productive peak never seen before, while their revenues are in a bloody dip as well as unprecedented.
BTC hashrate data
Bitcoin hashrate hit a new all-time high of 242 Exahash per second. To understand the scale of this number, it would be the equivalent of all 7.753 billion people on Earth completing a SHA-256 hash calculation (BTC hashrate) approximately 30 billion times per second. These are extraordinarily large numbers.
Mining difficulty adjustment is a necessary measure to ensure new blocks are discovered within approximately 10 minutes. Avoiding it to (1) varying too much downward, increasing BTC inflation with many rewards being paid out within minutes; and (2) peaking upwards, delaying and making bitcoin transactions on the network more expensive, with fewer blocks being broadcasted.
This adjustment is the search for balance and it increases in parallel with the increase in the BTC Hashrate, since with more hashrate, more blocks would be discovered for minutes on the same difficulty.
Increasing difficulty also makes mining more expensive, as it takes more computing power and more proof-of-work to find the same amount of blocks at a lower difficulty; which means more spending on energy, internet and ASICs for less 6.25 BTC block rewards at the current halving.
As well as Bitcoin's all-time high hashrate, the network's difficulty has also peaked recently, at a time when the dollar reward is hampered by the low BTC/USD quote on the bear market.
And unsurprisingly, but worryingly, the revenues generated by Bitcoin mining farms have moved precipitously in the opposite direction of the other two metrics, hitting all-time lows!
The trades are operating at around 4.06 BTC per Exahash and the dollar revenue is around $83,000 USD/EH.
This means that many mining companies may be operating at a loss right now, or at a very low margin, perhaps even dependent on outside capital to survive as the winter lingers in the cryptocurrency market.
The connection between these three data also means that, at the moment, only companies with healthier cash flow and balance sheets, or with access to cheaper external capital, will be able to remain active. This could cause a centralization in the network, in the short and medium term, in an effect of economies of scale; where it becomes increasingly difficult for the small ones to recover, while the large ones gradually grow.
Despite this negative outlook, the projection of a possible price recovery in the short term gains strength, as we observe the optimism reflected in the high investment needed to not only increase the BTC hashrate to historic levels, but to keep mining going, even in such an adverse scenario.
This piece was originally published in Portuguese by me for Cointimes here.