50% of Bitcoin miners are “offline,” what are they doing from the data?
As prices rebound in the bull market, Bitcoin mining may be very profitable during this halving period
A great migration of mining machines is underway in the past week, and 50% of Bitcoin miners are offline and migrating.
Although trading volume is still within the trading range established since mid-May, Bitcoin trading volume has increased slightly this week. This week’s Bitcoin price has a high point of 36460 USD and a low point of 32775 USD. The volatility of the price is decreasing during the sideways trading period.
The price of Bitcoin is falling, but the volatility of the mining industry has increased significantly. During the great migration of mining machines, the computing power of Bitcoin’s entire network dropped sharply. This week, the Bitcoin protocol experienced the most significant difficulty adjustment in its history, dropping by 27.94%.
The Bitcoin protocol has extraordinary resilience. New blocks have continued to be mined this week, and transaction settlement has not been interrupted. At the same time, about 50% of the mining base is being transferred, and 50% of the capital is redistributed to other regions.
The scale of mining migration is significant in the mine
The volatility of mining indicators has increased significantly this week, as the impact of China’s mining ban has gradually unfolded. When a significant percentage of the computing power goes offline, block mining speed will slow down until the difficulty is adjusted downward. This type of mechanism of Bitcoin combines the complexity of mining difficulty with the average computing power observed in the 2016 block difficulty window.
This week, the average block burst time calculated on a 24-hour average soared to a short-term high of 1958 seconds, which was more than 226% longer than the average block burst time of 600 seconds. Fortunately, the ultra-long block burst time on June 28 was only short-lived, and the average block burst time has since recovered to an average of 800 to 900 seconds.
To estimate the scale of the ongoing computing power transfer, we considered the peak computing power changes observed from April to early May 2021. Please note that the calculation power value is estimated by the derivative of block time and difficulty. Here we use a 24-hour moving average to smooth out some natural changes.
The computing power of the entire Bitcoin network is usually around 180 EH/s during the peak period and then drops to a local low of 65 EH/s (consistent with the 1,958 second average block time on June 28).
Since then, the computing power has gradually recovered and stabilized in the range of 88 to 110 EH/s, reflecting the overall decrease in computing power of 38% to 49%. In addition, it reflects the proportion of Bitcoin hashrate currently offline and affected by the Chinese ban.
Now that the difficulty of the agreement has been adjusted, we can see that the difficulty ribbon has reversed to the deepest level since the bear market surrendered in 2018. Difficulty ribbon upside down is a highly uncommon event. The fast-moving average of difficulty (9th, 14th, etc.) breaks below the long-term moving average (128th, 200th).
Difficulty ribbon reversals usually represent miner surrender events, usually observed at the end of a bear market or after a halving event where miners’ income is squeezed and profitability is hit. It results from miners shutting down machines whose costs are higher than benefits and are related to the historically bullish solid market reversal.
Miners’ income soars
Although historically, the difficulty ribbon reversal is a bullish event. But under the current circumstances, the vast logistics costs incurred by Chinese miners may require selling their previously accumulated bitcoins, thereby creating selling pressure. However, it should be noted that the income of the remaining about 50% of the miners who are still operating has increased, which is a kind of balance to some extent.
When Bitcoin traded between 50,000 and 60,000 in April, the computing power was at its peak, and the total income of mining was $50-60 million per day. Although the price has dropped by about 50% since then, miners still in operation found that 38% to 49% of competitors closed their businesses in the short term.
The total daily mining income is about 25-30 million US dollars, but fewer miners share the income. The number of newly issued bitcoins is the same every day, but fewer competitors share the spoils. It means that after the latest difficulty adjustments, miners who are still in operation, their operating expenses remain unchanged. Still, their profit margins have risen nearly twice, close to the profit margin level in April this year.
Historically, we have seen the following cyclical patterns in the selling behavior of miners:
- Hoarding in a bear market (green), miners reach a stable selling pattern (the outflow multiple is flat).
- The increase in selling in the bull market (red), miners use the bull market to accelerate the selling of Bitcoin (the outflow considerable increases).
- After the market peaked, sales decreased (blue) because miners slowed down their sales, perhaps due to more and more beliefs or a desire to limit excessive selling pressure (decreased outflow multiples).
What is impressive is that even during the mining machine migration, we have not seen a significant increase in the selling behavior of miners. The speed of recovery of computing power provides us with more clues:
- The rapid recovery of computing power indicates that Chinese miners are successfully relocating, liquidating hardware equipment, or recovering costs in other ways to reduce the risk of selling the miner’s reserve.
- The slowly prolonged recovery of computing power is contrary to the apparent situation, which increases the probability of miners bearing costs and debt accumulation, thereby increasing the possibility of miners selling Bitcoin.
Starting in mid-2020, the sales of miners have shown a structural downward trend. However, this trend seems not only to flatten out but also to be reversed.
It shows that miners have begun to accumulate at a rate unprecedented in the market. Considering the time of this incident, there may be many factors behind this need to be considered:
- The global macro currency pattern that supports Bitcoin will become more evident in 2020, increasing the belief of miners in holding currency.
- Miners have access to many financing options, such as Bitcoin-collateralized debt and liquid options and futures markets to hedge risks.
- Due to the limitation of global chip manufacturing capacity, the production of ASIC mining machines has been reduced. However, as the price rises, the existing computing power becomes more and more profitable because almost no new competitors can enter the market.
As prices rebound in the bull market, Bitcoin mining may be very profitable during this halving period.