On the day of Bitcoin’s block reward halving earlier this week, digital asset manager and analyst Charles Edwards speculated that it would be the “most brutal halving in history,” noting how miners with skinny profit margins would be forced to capitulate out of the market after their revenues halve.
Many were quick to cast aside these fears, branding it as “FUD” or an old and broken narrative. However, true to the ever-contrary nature of the cryptocurrency market, Edwards’ bearish view was accurate with reports from blockchain analytics companies registering a strong crash in Bitcoin’s hash rate.
But that’s not necessarily a bad thing.
Bitcoin Hash Rate Plunges 30%
On May 11th, Bitcoin experienced its third block reward halving when block 630,000 was mined into existence.
In the hours after the halving, it appeared that miners were stable, and were not subject to the “brutality” of a 50% decline in revenues that Edwards alluded to. Data from cryptocurrency mining site CoinWarz indicated that eight hours after the halving, Bitcoin’s hash rate was actually sitting at its seven-day moving average.
But this is changed as a few days have passed since the halving. According to May 14th data shared by blockchain analytics company Coin Metrics, the halving has started to have “large impacts” on the Bitcoin network.
The hash rate — the measure of computational power being used to mine blocks, or process transactions in layman’s terms — has “dropped 30%.” This has caused the Bitcoin network to slow down by approximately 25%, with blocks mining slower, increasing transaction fees as the demand for transactions has not matched the slowing in processing.
Less than 48 hours after halving, we’ve already seen large impacts on #Bitcoin
Inefficient miners appear to be leaving the network as hash rate has dropped 30%. It will likely recover after a period of churn where efficient miners replace less efficient operations. pic.twitter.com/X7Vk7Hz0zb
— CoinMetrics.io (@coinmetrics) May 14, 2020
While the hash rate is subject to spikes and declines as miners try and maximize profits, there may be no immediate spike higher this time around.
The decline in hash rate is in line with an analysis by Matt D’Souza, a hedge fund manager and the chief executive officer of Blockware Mining.
D’Souza said on the date of the halving that if Bitcoin trades around the $8,000s and $9,000s levels, more than 30% of miners are actually unprofitable. This increases the chances of “extreme capitulation,” whereas miners are forced to turn off their machines and potentially sell their coins.
Crash of Hash Rate Isn’t Necessarily Bearish
While the word “capitulation” strikes fear into the hearts of Bitcoin investors around the world — the term was used ad nauseam during the crash in 2018 — it’s not necessarily a bad thing.
Halving Still Helps Bitcoin’s Bull Case
Although the halving may be crushing the profitability of many miners, analysts are still certain that the event will help Bitcoin’s bull case in the longer term.
In a comment made on a Bitcoin halving-themed livestream hosted by Tone Vays — a former vice president at J.P. Morgan — Gemini founders Tyler Winklevoss and Cameron Winklevoss said that the halving prepares Bitcoin for its next round of exponential growth:
We’re set for another order of magnitude step up — whether $20,000 is the Bitcoin base, maybe we see $100,000. But each [halving], the cryptocurrency becomes exponentially bigger than we could imagine.
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