Since hitting $9,200 last weekend, the Bitcoin price has been constantly falling. Then on Jan. 24 Bitcoin went down to nearly $8,200 level. Currently, we are hovering around $8,300 while managing the daily trading volume of $630 million, as per Messari.
During this time, just like the price has got stuck, the hash rate of the Bitcoin network has also remained below its all-time high of 126 Th/s, a high that was hit the day BTC price was at $9,000.
When it comes to hash rate, analyst Ceterus Paribus observes using the 7-day moving average that the hash rate doubled at speed during the bull market of 2017. During that period, the time taken to double the hash rate kept on decreasing, going from 284 days to 117 days to 132 days to 117 days.
This time taken for hash rate to double again took up during the bear market of 2018, when it took over a year to go from 34 Th/s to 64 Th/s. But now as we head into the halving, coming in May 2020, the hash rate has yet again picked up speed.
Mining death spiral believers at fault?
While the hash rate continues to grow and hit a new all-time high quite regularly, what exactly will be the effect of the third Bitcoin reward halving on it. Will there be a miner capitulation or mining death spiral?
Popular analyst PlanB conducted a Twitter poll to know what does the Crypto Twitter think of this.
The poll revealed that the majority, 53.8% of the total 7,734 voters believe there will be no death spiral. However, 13.5% thinks there would be a death spiral while 32.7% simply don’t know.
But before we proceed further to see if there will be a miner capitulation or death spiral, let us see what does these hot and heavy terms even mean.
What is it exactly?
So, first miner capitulation. In the crypto market, when BTC prices fall at a level that smaller, independent mining operations can no longer keep it running and are forced to sell their BTC, that’s miner capitulation.
This situation escalates to a point where miners panic sells further tanking the price leading the longs to get liquidated and stop losses to cascade which gets more miners tangled into this vicious web.
In the mining death spiral, the hash rate drops to near-zero but that abrupt drop is not likely to happen because as crypto advocate, Andreas Antonoupolus said miners have a “much more long-term perspective.”
Also, there is always someone to take the position of the miners who exited the market with their cheaper hardware. This means difficulty adjustment would make sure that Bitcoin at any price level is profitable to mine.
And if nothing works, there could always be a fork to manually adjust the Bitcoin difficulty lower. Overall, a drop in hash rate can have some effects on Bitcoin price, even drastic but it all will be pretty short term, as such no death spiral.
Chill out, the possibility of a mining death spiral is Zero
PlanB himself says the possibility of a mining death spiral is “effectively zero.”
He notes that after 2012 and 2016 Bitcoin halving, there was no death spiral or miner capitulation and “So far 2020 difficulty path tracks 2016 perfectly.”
But it also means these people who believes a mining death spiral would occur after May 2200 halving and those who have no idea are the ones standing between the Bitcoin’s current price of $8,300 and the price determined by the stock-to-flow model at $50,000-$10,000.
If this risk disappears, PlanB says, we are off to a new all-time high.