Difficulty Reaches ATH, Profitability Decreases

The most recent Glassnode report focuses on the subject of the day: bitcoin mining. Whereas bitcoin’s worth has been suspiciously flat for some time, the problem adjustment got here in and registered an all-time excessive. Do the miners know one thing we don’t? Or is there a switch of energy occurring behind the scenes? Glassnode poses a working idea on their latest The Week On-Chain. To start with, Glassnode places the problem adjustment into perspective:

“Bitcoin hashrate has reached a brand new all-time-high of 242 Exahash per second. To provide an analogy for scale, that is equal to all 7.753 Billion folks on earth, every finishing a SHA-256 hash calculation roughly 30 Billion occasions each second.”

The factor is, we’re in a bear market. The sentiment is fearful. There’s hassle brewing in all places on the planet and bitcoin has been boring for some time now. What might be the rationale for a hashrate all-time excessive? Is it, as Glassnode theorizes, “a brand new dynamic as extra of the hashpower is held by higher capitalised publicly traded mining firms”? Or is it simply the sport idea behind bitcoin at work? Do not forget that mining income can also be down and the associated fee to provide one bitcoin goes up in tandem with electrical energy costs. 

Making the state of affairs extra unstable, the miner income’s bitcoin is at a low level. This “ought to, in idea, create elevated earnings stress on the mining business.” Add bitcoin’s steady costs to that equation and, what do we have now? “This can be very uncommon for BTC costs to remain so stationary for lengthy, suggesting heightened possibilities of volatility on the horizon.”

Bitcoin Hashrate All-Time Excessive | Supply: The Week On-Chain

Bullish Sign: Bitcoin Hash-Ribbons Unwind

Based on Glassnode, “the Bitcoin hash-ribbons commenced an unwind in late August, offering a sign that mining circumstances had been bettering, and hashrate was coming again on-line.” What does this imply and why is it bullish, although? “Nearly all historic hash-ribbon unwinds have preceded greener pastures within the months that adopted.”

Based on Glassnode, since bitcoin’s worth continues to be flatlining, the “hashrate rise is because of extra environment friendly mining {hardware} coming on-line and/or miners with superior steadiness sheets having a bigger share of the hashpower community.” That’s the bottom of Glassnode’s takeover idea.

Glassnode Proposes “The Mining Halving” Idea

One other of their wild theories, Glassnode poses that “a 66% improve in Issue and Hashrate since Oct-2020 corresponds to an approximate halving in income per hash.” And to help that, they supply these numbers: “the income earned per Exahash has been in a persistent and long-term downtrend, with the BTC-denominated reward at the moment at an all-time-low of 4.06 BTC per EH per day.”

So, if miners are getting destroyed by market circumstances, why is the hashrate recording all-time highs? The reply may lie with the Puell A number of, “which is a cyclical oscillator that compares the present every day mining income to their yearly common.” Based on this indicator, the mining enterprise is definitely gaining floor in opposition to earlier efficiency. 

“The Puell A number of hit the present lows of round 0.33 in June, indicating that miners had been incomes simply 33% of their yearly common income. It has since recovered to round 0.63, implying a level of stress reduction, and adjustment to this new pricing regime.” Based on Glassnode, this reduction may imply that “a real bear market low is established.”

BTC worth chart for 10/11/2022 on Bitstamp | Supply: BTC/USD on TradingView.com

Glassnode Thinks There’s Nonetheless Capitulation Danger

Let’s be clear, bitcoin is strolling a tightrope for the time being. The market is about to interrupt and the pendulum may swing both method. Regardless that there are causes to be optimistic, the good investor ought to put together for the worst. “By quite a few fashions, we estimate that the common value of BTC manufacturing hovers slightly below present costs, such that any important worth decline may flip an implied earnings stress, into acute and specific stress.”

To evaluate the danger, Glassnode decided “the mixture dimension of miner balances” to 78.4K BTC. The house owners of these reserves “could come beneath earnings stress,” however “This can be very unlikely this full quantity could be distributed.”

And that’s the place we stand for the time being.

Featured Picture by Icons8_team from Pixabay | Charts by TradingView and The Week On-Chain