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

Key facts:

The average interval between mined blocks peaked at 30 minutes.

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

Bitcoin price volatility, which has declined markedly in recent weeks, appears to have carried over to mining metrics, says the latest Glassnode report. The Chinese government’s restrictions on the operations of bitcoin miners caused a record drop in the network’s hash rate.

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

“The metrics discussed in this report help to characterize and weigh the magnitude of this incredible displacement that is in full swing,” the study states.

Average interval between mined blocks

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

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

This is the longest block mining time in the history of bitcoin, except for the cypherpunk era, during the first year of the cryptocurrency, when it did not even have a price, the report states.

The graph below shows another record interval, 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 USD 20,000.

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

Evolution of the hash rate in 2021

Glassnode claims that between the period from April to May, the hash rate on the network averaged 180 EH / s. From these levels the hash rate fell to a record low of 65 EH / s, as reported by CriptoNoticias. This occurred when the average block time reached its maximum of 1958 seconds, on June 28, as shown in the following graph.

Hash rate from January to July 2021. Source Glassnode.

“Since then, the hash rate has recovered and stabilized around the 88-110 EH / s range, 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 due to the ban in China.

Reversing the Difficulty Ribbon

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

If short-term averages fall below long-term averages, there is a reversal of the difficulty ribbon, a rare scenario associated with the capitulation of miners and large holders.

The reversal of the difficulty ribbon occurs in bearish scenarios. Source: Glassnode.

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

Also, the reversal of the difficulty ribbon can occur after halvings, as seen in the graph above, when miners’ revenues decline and profitability suffers, according to the authors. This reversal also took place in the fall of the markets, in mid-March 2020. The so-called great migration of the miners, also caused this bearish-cut scenario, as Glassnode points out in the graph.

Rise in revenue for bitcoin miners

Although the change in the order of the difficulty curves has preceded bullish phases, on this occasion the logistical expenses of the miners would have forced them to sell part of their accumulated BTC, the report states. However, the authors note, on the other hand, there was an increase in income for 50% of the miners that remained operational.

Glassnode highlights in the graph below that when the price of bitcoin was in the range of $ 50,000 to $ 60,000, miners received income between $ 50 million and $ 60 million per day. “While bitcoin prices have since declined by around 50%, for those miners that 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 profitability of the miners, during the migration, is then similar to what they had in April, says Glassnode.

Tracking bitcoin miners’ spending

Glassnode uses the Mining Outflow Multiple (MOM) metric that tracks miners’ expenditures relative to their annual average. Upon examination, the miners dramatically lowered their expenses, even during the great migration, the study says.

There is a cyclical pattern in miners that comprises a HODLING or retention phase (in green in the graph below), according to the report. In this phase the MOM is flat, unchanged.

The Outgoing Flow of Miners (MOM) metric estimates your expenses. Source: Glassnode.

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

In the current bull cycle, according to the graph, miners halted their spending in 2021, after a period of accelerated spending from October 2020 to January 2021.

Evolution of unspent supply of miners

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

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

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

Among the financial and technical factors that underpin this accumulation, the study cites the macro-monetary outlook in favor of bitcoin that materialized in 2020, the 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 highlights that by reducing the issuance of BTC by 40% on June 28, the ratio of reserves versus flow (S2F) reached 140 that day, which turned bitcoin, for that day alone, into an asset 2.37 times rarer than gold.

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

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