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Hashrate Drop: Estimated 1.3 mln Bitmain S9 Miners Switched off

Bitcoin hashrate has fallen by about 31% since the start of November 2018, says BitMex in its recent crypto market analysis in the wake of a general price decline. The crypto exchange notes that the reduced hashrate, which it estimates represents a switch off of almost 1.3 million Bitmain S9 miners, could impact the crypto mining aspect of the industry even as the prices of top cryptocurrencies continue to fall.

The falling prices make it less profitable to mine Bitcoin in particular as the energy cost required would be higher than the value of the cryptocurrency produced. By design, Bitcoin’s difficulty level ought to drop as miners leave the network thus making it more profitable for the miners that are left. But BitMex concludes that many miners are struggling at the moment and since not all miners have the same electricity and other costs, it is the higher cost miners that could have switched off their machines first as Bitcoin price declines. It says:

“The prices have so far caused two large downward difficulty adjustments to Bitcoin, 7.4% and 15.1%, on 16th November and 3rd December, respectively. The 7.4% adjustment was the largest since January 2013 and the 15.1% adjustment was the largest since October 2011…Bitcoin mining industry revenue has fallen from around $13 million per day at the start of November to around $6 million per day, at the start of December. This drop in incentives was even larger than the fall in the Bitcoin price, due to a delay in the way difficulty adjusts. In the six-day period ending 3rd December, 21.8% fewer blocks than the expected 144 per day were found, as miners left the network before the difficulty adjusted, and as a result, fewer blocks were found. Therefore in the short term, there was a 21.8% fall in mining incentives on top of the impact of the declining price.”

Miners with lower costs are likely to be making profits after the depreciation and other administrative expenses, it adds, especially if they acquired their equipment at below-cost prices. Miners that invested too much in equipment would have achieved large negative ROIs.

Causes of price crash
In line with claims that some miners sold Bitcoin to finance a costly hashwar in Bitcoin Cash, BitMex notes that crypto intelligence monitoring platform Boltzmann detected “unusually
large miner selling of Bitcoin on 12th November, a few days before the Bitcoin Cash split.” These net Bitcoin sales from the miners (suspected to have been a member of Slushpool) were “17.5 standard deviations below [the] 3-month trailing average,” it says.

However, it views that while the Bitcoin Cash hashwar may have catalyzed the price drop, the general market’s bearish state makes it almost impossible to evaluate its impact on the phenomenon. This is because prices have been falling regardless of the hashwar news or investment flows, BitMex adds, and prices seem to fall on non-news or bad news and ignore good news in a bear market while the reverse is true in a bull market.

The report says: “We think it’s likely that prices would have been weak regardless of any miner selling prior to the Bitcoin Cash split. For cryptocurrency, trader sentiment is king.”


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