Bitcoin is a machine that never stops moving. The Bitcoin hashrate is gradually returning to pre-China ban levels, and the service has been running without a hitch. Such is the power of strategically placed incentives. Dan Morehead, CEO of Pantera Capital, adds another variable to the mix. “The bitcoin network has recovered 68 percent of the hashrate drop that our difficulty model attributed to China’s ban—most likely in areas with cleaner energy.”
The recovery is happening exactly as forecast.
The #bitcoin network has recovered 68% of the drop in hashrate that our difficulty model attributed to China’s ban—likely in places with cleaner energy.
The transition to renewables is underway.
Sep Letter: https://t.co/xLyaLpPQQN pic.twitter.com/UsK9ML3BU8
— Dan Morehead (@dan_pantera) September 9, 2021
Pantera expands on the argument in its newsletter:
“Although it is difficult to say with certainty, it appears very likely that much of the restart in mining power is taking place in areas with cleaner energy than those used by Chinese miners.
The switch to renewable energy is well underway.”
Are ESG Concerns Even Relevant When It Comes to Bitcoin Hashrate?
We discovered that Bitcoin mining in China tended to be concentrated in provinces with abundant green energy. Bitcoin encourages this. The Bitcoin hashrate tends to gravitate toward areas where energy is cheap. We’ve also determined that the Bitcoin mining ban does not appear to be motivated by environmental concerns.
“Because the electricity used for crypto mining in Sichuan was generated by clean hydropower, many people assumed the province would be a safe haven for Bitcoin miners. As pressure on local governments to reduce carbon emissions grows, projects in other provincial-level regions, such as Xinjiang and Inner Mongolia, where mining was primarily fueled by coal, have been successfully closed.”
The only certainty about the Chinese government’s plan is that the environment is not on their radar. They’re shutting down these mines for a variety of reasons.
It’s also worth noting that China’s Bitcoin hashrate dominance was already dwindling prior to the mining ban.
“According to Arcane Research, CBECI figures show:
China’s share of total Bitcoin mining power has fallen from 75.5 percent in September 2019 to 46 percent in April 2021 — before Chinese miners were even restricted. This figure is significantly lower than the previous estimate of 65%.
That is a significant decrease. Why did Chinese miners lose so much ground prior to the ban?”
However, none of this invalidates Pantera Capital’s original thesis. “The transition to renewables is well underway,” appears to be the case. And the Bitcoin hashrate continues to rise.
Do Bitcoin Halvins imply energy consumption reductions?
Another intriguing idea from the aforementioned newsletter is as follows:
“Bitcoin has an in-built mechanism for reducing energy consumption over time. Every four years, the number of bitcoins issued in the every-ten-minutes block reward is cut in half. Generally speaking, the amount of electricity Bitcoin consumes will be reduced by half every four years. In comparison, the Paris Agreement only calls for 7% cuts every four years.”
Of course, when compared to fiat currencies, the price of Bitcoin fluctuates. As a result, the value of each Bitcoin remains constant, but the price can – and usually does – increase more than twice as much. Even if the miner’s rewards are reduced by half, their earnings may increase. That extra money could lead to increased competition and, as a result, an increase in Bitcoin hashrate.
Taking this into consideration, Pantera poses:
“Perhaps a more realistic scenario would be if the price of bitcoin doubled every four years in tandem with the halvings, putting bitcoin at $320,000/BTC in 2032 – electricity consumption would be no higher than it is today.”
Enough about Bitcoin’s hashrate; what about its price?
This is another point raised in the newsletter.
“This is China’s third Bitcoin ban. The reverse hex is still active – the price is up 57%.”
Is this a positive sign? Since the Chinese mining ban sent the Bitcoin hashrate into a death spiral for a few seconds, the price of Bitcoin has only risen by 57 percent. Bitcoin paid the price and stood firm against sabotage like a hero. We’re not sure if a “reverse hex” is reliable information, but… could this be a bullish signal?