Why Did the Bitcoin Hashrate Suddenly Plummet Down?

Last month, we published an article on how Bitcoin’s hashrate reached its all-time high. However, the hashrate suddenly nosedived on September 23rd as it crashed from 98,000,000 TH/S to 67,700,000 TH/s, as per Blockchain.com. What is particularly surprising is that the network hashrate hit a new all-time high on 19th September, by surpassing 102 quintillion hashes.

Usually, the difficulty chart moves along with the hashrate. However, this time, the difficulty chart has remained stable.

Charts taken from Bitinfo Charts.

As of now, it is hard to pinpoint exactly why this happened. But, what we do know for a fact is that the price of bitcoin has also dropped down.

On 23rd September, the price of BTC/USD fell from $10,030 to $9,690.50, going below the $10,000-level in the process.

The last time Bitcoin’s hashrate had a noticeable slump was way back in November 2018.

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From its all-time high on August 27th, the hashrate dropped by nearly 44% due to falling prices and mining profits. However, what’s different is that while that drop happened over a certain period of time, the present one is a sudden flash crash.

Speculating on what could have happened

Lower Miner Profitability

One possible explanation is that there has been a sudden exodus of miners from the network because of low miner profitability. Checking out the miner profitability chart, one can see that bitcoin mining has become increasingly less profitable.

Overall profitability depends on several factors such as the cost of electricity, the price of equipment, mining difficulty, and the price of bitcoin itself. As per CCN, the current lull in Bitcoin’s price may have pushed the miners out.

However, a report by CoinDesk made on 23rd September itself paints a different picture. Yang Zuoxing, founder and CEO of MicroBT, announced in a keynote speech that the company had made $400 million in just a few months. MicroBT creates the WhatsMiner bitcoin mining equipment. According to Zuoxing, their M20 series models have been selling like hotcakes and they have already delivered over 100,000 units and expect to deliver 200,000 by the end of September. If mining profitability really is the issue behind this exodus, then it makes no sense for miners to keep buying such expensive mining equipment.

Did some powerful pools go offline?

Another theory that has been floating around is that a group of powerful mining pools may have gone offline due to power outages. If it is just one mining pool, then that will be pretty ridiculous because one single mining pool shouldn’t have that must power. Of course, we are not saying that it is impossible.

However, what if a bunch of mining pools went offline at once due to the power outages. Squire Mining LTD recently announced in a press release that its mining operations in Kazakhstan might suffer from a temporary outage. The Company’s hosting provider has also advised that the outage is expected to last between 10 – 14 days. Obviously, other mining pools in the area must be suffering from the same power outage problem.

This begs the question, how much is Kazakhstan’s overall mining power? It was not too long ago that the country was looked at as the next mining hotbed. Firstly, they had cheap electricity. In fact, according to this article, only Venezuela, Argentina, and Algeria offer more affordable energy prices. The advantage that Kazakhstan has over these other countries is that it is significantly cooler. Mining equipment tends to get very hot during operations and a cooler climate will increase its longevity.

Plus, bitcoin has some powerful backers within the county, chief among them being the governer of Astana International Financial Centre (AIFC), Kairat Kelimbetov. After some initial reluctance, Kelimbetov has openly supported the establishment of cryptocurrency and blockchain enterprises.

So, does Kazakhstan have that much mining clout that they can affect Bitcoin’s hashrate this drastically? As of now, we can only speculate.

Why Did the Bitcoin Hashrate Suddenly Plummet Down – Conclusion

Hashrate is defined as the computational power of a decentralized proof-of-work (POW) network. Its importance simply can’t be overstated. The higher the hashrate, the more the mining activity within bitcoin. This affects the network’s overall speed and security. If a network’s hashrate drops, it means that it has become significantly weaker. It will be interesting to see if the hashrate is going to recover any time soon or it’s going to sink even further.