Even with half of the miners disconnected, Bitcoin shows its robustness

Key facts:
  • The average interval between mined blocks reached a maximum of 30 minutes.

  • From an average of 180 EH/s, the hash rate reached a low of 65 EH / s.

Bitcoin price volatility, which has noticeably declined in recent weeks, seems to have moved towards mining metrics, says the latest Glassnode report. Chinese government restrictions on bitcoin miners ‘ operations caused a record drop in the network’s hash rate.

Referring to the week of June 28 – July 4, when the exodus of Chinese miners was accentuated, Glassnode argues that the resilience of the Bitcoin protocol is remarkable. “That week blocks continued to be mined and transactions processed, even as 50% of the industry moved its facilities and reallocated capital to other jurisdictions,” the report said.

“The metrics addressed in this report help characterize and weigh the magnitude of this incredible displacement that is in full development,” the study says.

Average interval between mined blocks

When a significant proportion of the hash rate decreases before a difficulty adjustment, blocks are mined at a lower rate. In the aforementioned week, the interval between blocks grew to 1,958 seconds, or 32.6 minutes, the report highlights. This is 226% higher than the 10 minutes or 600 seconds that characterize the pace of Bitcoin block mining, Glassnode notes, clarifying that that delay occurred on June 28. Then the rhythm began to gradually recover.

Evolution of Bitcoin hash rate in 2021. Source: Glassnode.

This is the longest block mining time in bitcoin historyexcept the cypherpunk era, during the first year of the cryptocurrency, when it was not even priced, the report states.

The chart below shows another record interval of 1,774 seconds, the second highest since 2010, which occurred at the final boom of the 2017 cycle, shortly before the all-time high of close to $ 20,000.

The second largest Bitcoin block interval, after 2010, before the 2017 high. Source: Glassnode.

Hash rate evolution in 2021

Glassnode claims that between the period from April to May, the hash rate on the network averaged 180 EH / s. Of these levels the hash rate fell to an all-time low of 65 EH / s, as reported by CriptoNoticias. This occurred at the time the average block time reached its peak of 1958 seconds, on June 28, as shown in the chart below.

Hash rate from January to July 2021. Glassnode font.

“Since then, the hash rate has recovered and stabilized around the range of 88 to 110 EH/s, reflecting a decline from 38% to 49%,” the report says. This provides, according to Glassnode, an indicator of the proportion of the network that is offline by ban in China.

Reversing the difficulty tape

When the moving averages of Bitcoin difficulty of different periods are represented on the same graph, the fastest ones, for example 9 days or 14 days, are normally above long-term moving averagesexplain the report. This is how the so-called tape or difficulty band is formed, a metric introduced by Willy Woo in 2019, as reported by CriptoNoticias.

If short-term averages fall below long-term averages, a reversal of the difficulty tape occurs, a rare scenario associated with capitulation of miners and big holders.

The reversal of the difficulty tape occurs in bass scenarios. Source: Glassnode.

“Now that the difficulty of the protocol has been reduced, we can see that the difficulty tape has been reversed to the maximum since the bear market capitulation of 2018,” the study states. This reversal of the difficulty tape generally represents a miners capitulation event, usually observed at the end of bear markets, the report highlights.

Also, the reversal of the difficulty tape can occur after the halvings, as seen in the chart above, when the miners ‘ income is reduced and profitability is affected, according to the authors. That investment also occurred in the fall of the markets, in mid-March 2020. The so-called great migration of miners also caused this bearish cut scenario, as Glassnode points out in the chart.

Bitcoin miners ‘ revenue boom

While the change in order of the difficulty curves has preceded bullish phases, on this occasion the miners ‘ logistical expenses would have forced them to sell part of their accumulated BTC, the report states. However, the authors point out, there was in return an increase in revenues for the 50% of the miners who remained operational.

Glassnode highlights in the chart below that when the price of bitcoin was in the range of $ 50,000 to $ 60,000, miners were receiving revenue between $ 50 million and $ 60 million daily. “While bitcoin prices have since declined by about 50%, for miners who remained operational, between 38% and 49% of their competition went offline in the short term.

Lower income after migration is shared among fewer miners. Source: Glassnode.

The miners ‘ profitability, during the migration, is then similar to what they had in April, Glassnode says.

Tracking bitcoin miners ‘ expenses

Glassnode uses the Miner Outflow Multiple (MOM) metric that tracks miners ‘ expenditures relative to their annual average. By examining it, miners dramatically reduced their spending, even during the great migration, the study says.

There is a cyclical pattern in miners comprising a HODLING or retention phase (in green in the chart below), according to the report. At this stage the MOM is flat, unchanged.

The miners ‘ Outgoing Flow (MOM) metric estimates their expenses. Source: Glassnode.

Then, there is the accelerated (red) spending phase, of rising MOM, when miners take profits in a bull market. Finally, when the market reaches a maximum (blue), miners slow down sales, and the MOM decreases.

In the current bullish cycle, according to the chart, miners slowed their spending in 2021, after a period of accelerated spending from October 2020 to January 2021.

Evolution of the unspent supply of miners

Glassnode proposes another perspective on miners ‘ spending, in which it takes into account the expenses with respect to the BTC retained. Historically, miners have spent more BTC than they accumulate, so what was effectively retained was on the decline, the report states.

The following graph shows the change in this pattern, since in 2020 not only did the decreasing slope decrease, but, from July of that year, the trend is slightly increasing. In other words, miners have started accumulating BTC, the authors argue.

Evolution of the unspent supply of miners. Source: Glassnode.

Among the financial and technical factors underpinning this accumulation, the study cites the macro-monetary outlook in favor of bitcoin that materialized in 2020, miners ‘ access to various financing options, and the entry of little new mining competition into the market, due to limitations in global ASIC chip manufacturing capacity.

Glassnode points out that when the issuance of BTC decreased by 40% on June 28, the reserve versus flow ratio (S2F) reached 140 that day, which made bitcoin, for that day alone, an asset 2.37 times scarcer than gold.

As a sign of the resilience of the Bitcoin network, despite the sharp decrease in hash rate that caused unusually long intervals between blocks, it began to stabilize and the intervals have again fluctuated around the expected value of the 10 minutes. This is shown in one of the block interval tracking sites, bitinfocharts. Even in the midst of the record migration of miners, the revenues of these resemble the values of last April, in full bullish peak.

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