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The latest Glassnode report focuses on the topic of the day: bitcoin mining. While the price of bitcoin has been suspiciously flat for a while, the difficulty adjustment came in and registered an all-time high. Do the miners know something we don’t? Or is there a power transfer taking place behind the scenes? Glassnode presents a working theory about their latest The Week On-Chain. To start, Glassnode puts the difficulty adjustment into perspective:
Bitcoin hashrate has reached a new all-time high of 242 Exahash per second. To give an analogy for scale, this equates to all 7.753 billion people on Earth, each doing a SHA-256 hash calculation about 30 billion times per second.”
The point is, we’re in a bear market. The feeling is fearful. It’s hard to brew all over the world and bitcoin has been boring for a while. What could be the reason for a hashrate all-time high? Is it, as Glassnode theorizes, “a new dynamic because more hashpower is in the hands of better capitalized publicly traded mining companies”? Or is it just the game theory behind bitcoin at work? Remember that mining revenues also fall and the cost of producing one bitcoin rises along with electricity prices.
By making the situation more volatile, miner revenue bitcoin is at a low point. This “should theoretically create increased income pressures for the mining sector.” Add bitcoin’s stable prices to that equation and, what do we have? “It is extremely rare for BTC prices to remain stationary for this long, indicating heightened opportunities for volatility on the horizon.”
Bitcoin Hashrate All-Time High | Source: The Week On-Chain
Bullish Signal: Bitcoin Hash Ribbons Relax
According to Glassnode, “the Bitcoin hash ribbon began to relax in late August, indicating that mining conditions were improving and hashrate was coming back online.” What does this mean and why is it bullish though? “Almost all historical hash ribbons have preceded greener pastures in the following months.”
According to Glassnode, since the price of bitcoin is still flat, the “hashrate surge is due to more efficient mining hardware coming online and/or miners with superior balances that have a larger share of the hashpower network.” That is the basis of Glassnode’s takeover theory.
Glassnode Proposes Concept for “The Mining Halving”
Another of their wild theories, Glassnode, states that “a 66% increase in difficulty and hashrate since October 2020 equates to an estimated halving in revenue per hash.” And to back that up, they provide these numbers: “Revenue earned per Exahash has been in a sustained and prolonged downward trend, with BTC-denominated reward currently at an all-time low of 4.06 BTC per EH per day.”
So, if miners are being destroyed by market conditions, why is the hashrate registering all-time highs? The answer could lie with the Puell Multiple, “which is a cyclic oscillator that compares current daily mining revenues to their annual average.” According to this indicator, the mining company is even gaining ground from previous performance.
“The Puell Multiple hit current lows of about 0.33 in June, indicating that miners were earning only 33% of their annual average earnings. It has since recovered to about 0.63, implying some degree of stress relief and adjustment to this new pricing regime.” According to Glassnode, this relief could mean that “a true bear market low has been set”.
BTC price chart for 10/11/2022 on Bitstamp | Source: BTC/USD on TradingView.com
Glassnode thinks capitulation risk still exists
Let’s be clear, bitcoin is currently on a tightrope. The market is about to break and the pendulum can swing either way. While there are reasons to be optimistic, the savvy investor should prepare for the worst. “Based on numerous models, we estimate that the average cost of BTC production fluctuates just below current prices, so any significant price drop could turn an implicit income stress into acute and explicit stress.”
To assess the risk, Glassnode determined “the aggregate size of miner balances” at 78.4K BTC. The owners of those reserves “could be under income stress”, but “It is extremely unlikely that this full amount would be distributed.”
And there we are right now.
Featured Image by Icons8_team from Pixabay | Charts by TradingView and The Week On-Chain