Despite Bitcoin’s apparent hash rate recovery, analysts pointed out that the recent 150 EH/s reading was based on a 24-hour window.
Earlier this year, the Chinese government made the historic decision to prohibit any crypto mining operations from operating within its borders, resulting in a massive exodus of hashing power from China to neighboring countries — 168 exa hashes per second (EH/s) to nearly 86 EH/s as of June 23, representing a drop of nearly 40%.
To refresh your memory, the hash rate refers to the total computational power required to obtain a single Bitcoin (BTC). In other words, while central banks issue fiat currencies, miners are given new Bitcoin in exchange for solving blocks of complex mathematical code.
Prior to the ban, China claimed 65 percent of the total Bitcoin hashing power in the world. However, since the aforementioned relocation, a large number of mining pool operators have packed their belongings and moved on to greener pastures. In one case, Canadian mining firm Bitfarms reported that its revenue increased by nearly 30 percent quarter over quarter in Q2 2021, with the company mining 26 percent more BTC than the previous quarter.
What exactly is going on?
After a few months of upheaval, BTC’s hash rate levels appear to have stabilized, with numbers seemingly returning to where they were a few months ago. In this regard, data provided by crypto analytics firm CryptoQuant shows that the metric has once again surpassed the 150 Exahashes mark at 152 EH/s, more than tripling the levels reached on June 28 (52 EH/s).
It’s also worth noting that on May 13, Bitcoin’s average hash rate reached an all-time high of 197.6 EH/s, only to plummet by more than 65 percent as mining rigs across China were subjected to the “great migration.” However, with the metric now approaching early June levels, new all-time high values are expected to be recorded in the coming months.
Kevin Zhang, vice president of business development at crypto mining firm Foundry, told us that despite the apparent recovery, things are still far from “back to normal,” adding that the 152 EH/s reading was based on a short 24-hour hash rate estimate window, where luck was high across the entire network and blocks were solved faster than usual.
“Right now, the 24 hour moving average for hash rate is back around 130EH/s, which is consistent with the three- and seven-day moving averages. BTC’s hash rate is undoubtedly recovering and returning to normal. However, the vast majority, if not all, of China’s large-scale miners who have been displaced by the crackdowns have either shipped their mining fleets abroad or are warehousing them until they can find open hosting capacity.”
He went on to say that, as things stand, the entire world is still limited in terms of readily available infrastructure that can support all of the displaced mining units in order to keep Bitcoin’s hash difficulty stable.
“It is certainly exciting to see hash rate come online, and a large portion of it is due to new orders finally being delivered. By the end of the year, we could very well be setting new all-time highs for network difficulty and hash rate,” Zhang concluded.
The consequences of China’s ban will be felt for a long time.
According to Philip Salter, chief technical officer at Bitcoin mining firm Genesis Digital Assets, many Chinese miners have continued to hold out, hoping for an improvement in the situation within China or possibly waiting for an appealing opportunity to relocate overseas.
However, he added that most large mining sites have been purchased by 2021, and there is simply no short-term capacity for deploying 5-8 gigatonnes of mining hardware, implying that the situation has not yet reached any sort of tangible resolution. Salter continued:
“So, the situation isn’t over yet, and I believe the effects of China’s mining exodus will be felt for at least another year. Most mining hardware will most likely resurface sooner or later, and the hash rate will return. But we’ll have to wait and see if it happens gradually over time or if panicked hardware sales drive down market prices.”
Similarly, Igor Rugnets, the founder and CEO of mining firm BitRiver, told us that while a rebound in BTC hash rate figures was unavoidable — as previously ordered machines continue to be delivered to their international buyers — he believes that most machines that went offline in China due to the crackdown have yet to find a home abroad.
On a more technical note, Rugnets noted that in the weeks following the crackdown, Bitcoin’s total hash rate lost more than 60 exahashes of computing power. Given that the majority of those mining machines were not of the most recent generation, he believes that the crackdown would have brought 750,000 machines offline.
Finally, Rugnets believes that Bitcoin’s hash rate will continue to rise as previously ordered machines are shipped by manufacturers. Furthermore, he stated that each unit of these new mining machines has about eight times the hash rate of older generation machines that previously dominated the Chinese market. “Bitcoin’s hash rate may even set a new all-time high before the end of the year,” he predicted.
Mining companies in North America step up
According to data released by the Cambridge Electricity Index, US-based mining pools began capturing large portions of BTC’s hash rate even before June, when China’s local ban hadn’t even gone into effect. In this regard, Riot, a mining company based in the United States, reported $31.5 million in mining-related revenues for the three-month period, an increase of more than 1,500% from its Q2 2020 revenue of $1.9 million.
In addition, the company reported a 38% increase in the total number of Bitcoin it was able to mine compared to the previous quarter, generating 675 BTC versus 491 BTC in Q1. Riot has recently begun a $650 million 400 megawatt expansion project with Whinstone US, with four additional power production facilities currently under construction.
Marathon (268 percent ), Bitfarms (210 percent ), Riot (126 percent ), and Hut8 are other North American mining companies that have seen staggering year-to-date gains (180 percent ). Not only that, but data shows that the aforementioned companies generated an average of 58 percent more Bitcoin in July than in June.
Marathon Digital Holdings CEO Fred Thiel commented on his company’s recent performance, revealing that revenue increased by a sizable 220 percent (to nearly $30 million) in the second quarter of the year compared to the previous quarter. Furthermore, the company’s hash rate increased by a whopping 196 percent during the aforementioned time period. As a result, it will be interesting to see how Bitcoin’s hash rate recovery progresses from here, especially with an increasing number of firms around the world increasing their production capacities.