Cryptocurrency

A deep-dive into Bitcoin hash rate, reasons behind increase, and whether it will rise again

Zegex

Data analyzed by CryptoSlate shows that despite the downward trend in the price of Bitcoin (BTC), mining difficulty and hash rate have continued to rise this year, reaching all-time highs (ATH). did.

Mining difficulty refers to the likelihood that a miner will find the hash code required to mine one block. Hash rate, on the other hand, measures the computational power required to find a single hash code. Therefore, increasing mining difficulty increases hashrate and vice versa.

Bitcoin hash rate and difficulty
Bitcoin hash rate and difficulty

Hashrate and difficulty have increased exponentially since the beginning of the year. In the graph above, the pink line indicates hash rate and the turquoise line indicates mining difficulty.

The first mining difficulty ATH of the year was recorded on January 21st, increasing by 9.32% to reach 26.64 trillion. Almost two weeks later he hit 27.97 trillion new ATH on February 18th when another difficulty spike hit him. Despite the falling Bitcoin price and market turmoil, hashrate and mining difficulty continued to increase at the same pace, hitting a new ATH almost every few weeks until May 2022.

Both hash rate and difficulty declined for a short period from May to September. However, it remained above his year-to-date ATH level of 26.64 trillion. In September, both indicators started rising again when mining hashrate increased by 60% of his 24-hour period. It continued to increase and hit a new ATH level on October 3rd. 5. This increase was followed by a spike in mining difficulty of his 13.5% on October 10th.

The last increase of the year was recorded on October 24th, when Bitcoin mining difficulty increased another 3.4% to record 36.84 trillion new ATH. The hashrate remains at 260 EH/s at the time of writing and has not yet responded to the increase in mining difficulty.

Reasons for Hashrate Rise

There is no single reason behind the increase in hashrate. Basically, the hash rate increases as a result of increasing the number of miners. Several reasons can be enumerated in explaining the exponential growth in the number of miners.

One of the reasons could be the Ethereum (ETH) merger that took place at the end of September. With the merger, Ethereum miners lost their jobs as the Ethereum network switched from a proof-of-work system to a proof-of-stake system. Most Ethereum miners have likely switched to Bitcoin mining, which could have led to a significant increase in the number of Bitcoin miners.

In the 2021 bull market, the majority of Bitcoin miners have ordered new mining rigs to expand their business and are shipping now. As more mining rigs reach their destination, more rigs will plug in and start mining, increasing the number of miners in the network.

Additionally, the bear market saw mining equipment older than 2019 become unprofitable once Bitcoin fell below the $22,600 limit. I rolled up my sleeves to develop the rig. To make up for the loss of new generation mining equipment is being sold at affordable prices, the number of miners is also increasing and hash rates are soaring further.

These facts are just a few of the many factors that cause hash rate spikes. These factors are more like trends than his one-off events increasing the number of miners, so we have no way of knowing if the number of miners will increase enough to cause another spike in hashrate.

High hashrate result

Rising hash rates and mining difficulty will make Bitcoin mining more competitive and put more pressure on all miners. The particularly inefficient ones could not cope with the increased speed leaving the network.

In 2021, there is a trend among miners to go public to raise funds easily. Most of them expanded their businesses at the time with the funds they raised. But most stocks fell 80% of his after the bear market started in May. There was a lot of talk about possible bankruptcy this fall.

The Miner Net Position Change data also show that miners have been selling at their most aggressive rates since September in the last two years. Miner Net Position Change shows his 30-day rate of change in the unspent supply of Bitcoin miners. The red part of the graph below shows miners selling out, and the green part shows token accumulation in miners’ accounts.

Minor net position change
Minor net position change

Barring the January 2021 bull market, miners continue to sell at their best rates since 2021. However, the current sellout rate is occurring because miners need funds to keep their businesses running.

A June study revealed that public mining companies have sold more than 30% of their Bitcoin reserves in the first four months of 2022 alone. Compass Mining and Core Scientific are just two of his examples of troubled mining companies. Core Scientific had to sell 79% of its Bitcoin reserves to pay its debts, while Compass Mining had to close one of its mining facilities and pay its electricity bills. I couldn’t.

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