Anika Begay
On-chain data shows that Bitcoin mining hashrate has continued to decline, while the price of the cryptocurrency itself has taken a hit.
Bitcoin’s 7-day average mining hashrate has dropped more than 8% from its all-time high
Mining hashrate refers to a measure that tracks the total amount of computing power miners currently have connected to the Bitcoin blockchain. This metric is generally considered to be representative of the current state of BTC miners.
When the indicator value increases, it means that new miners are joining the network and/or that old ones are expanding their facilities. Such a trend implies that the chain is appearing attractive to these chain validators.
On the other hand, a drop in this metric suggests that some miners have decided to disconnect from the network, probably because they no longer find BTC mining profitable.
Here is a graph showing the average Bitcoin mining hashrate trend over 7 days over the last year:
Looks like the 7-day average value of the metric has gone through a decline in recent days | Source: Blockchain.com
As shown in the chart above, the 7-day average Bitcoin mining hashrate hit a new all-time high (ATH) late last month, but has been steadily declining since then.
ATH occurred when the price of BTC was rising, and the drawdown in the metric coincided with a period of bearish momentum for the cryptocurrency. The reason behind this close relationship is that miners’ revenues are closely tied to the price of the asset.
These chain validators derive their revenue from two sources: transaction fees and block subsidies, but the latter has historically dominated their revenues.
The block subsidy, which miners receive as compensation for solving blocks on the network, is paid out at a fixed BTC value and also at a more or less fixed time interval. This means that the only variable that is correlated is the USD price of the cryptocurrency.
As the asset value increases, so does the value of these rewards and, consequently, the miner’s revenue. As such, miners tend to follow the coin’s trajectory when it comes to adding or removing hashrate.
Interestingly, though, while Bitcoin had recovered above the $62,000 level earlier, the hashrate failed to see any reversal, perhaps because miners didn’t think the surge would last. In fact, they may have been right, as the asset retraced some of its recovery during the day just gone by.
One consequence of the continued decline in mining hashrate is that the network is set to see a negative change in difficulty in its next scheduled adjustment.
The next estimated change in the BTC mining difficulty | Source: CoinWarz
Difficulty is a feature of the Bitcoin blockchain that controls how difficult it is for miners to mine on the network. The existence of difficulty is what allows the block subsidy to be paid out at fixed intervals.
As miners add hashrate, they naturally become faster at mining and, therefore, churn out blocks at a faster rate. To counteract this, the network increases the difficulty just enough to slow miners down to the standard rate of 10 minutes per block.
As miners have recently reduced their hashrate, block times have been slower than usual. The Bitcoin blockchain will now reduce the difficulty by over 4% to make things easier for validators.
BTC Price
At the time of writing, Bitcoin is trading around $59,700, up more than 19% from last week.
The price of the asset appears to have gone down over the last day or so | Source: BTCUSD on TradingView
Featured image by Dall-E, Blockchain.com, chart by TradingView.com
