Bitcoin Mining Network Hashrate Keeps Rising Despite Crypto Market Slump

With Crypto-Mines Running Dry, Miners Just Dig Deeper

As cryptocurrencies fall below the total value of $200 billion, you'd honestly expect it to represent a hole in which miners have to stop digging to see the problem. While that might be what the old proverb teaches us, that's not the lesson that miners are taking away from it all.

But why is that? It's not so much that miners refuse to take on past lessons, but more down to the continuing level of complexity which epitomizes the process of cryptocurrency extraction. Generally, this includes the combination of declining values and increasing hash rates needed to extract things like Bitcoin.

And while hash rates continue to climb, the underlying value of Bitcoin means that it's still profitable for miners to keep working at extraction, while also encouraging investors to stay put, allowing it to defy the previous belief that it had fallen well past break-even points.

What does this mean? Well, for the most part, it demonstrates just how increasingly complex Bitcoin has become, from its introduction, and onward to the 1,400% price rally that it enjoyed up until recently. This rally, in itself, propelled a number of amateur miners to roll up their sleeves which, consequently led to more experienced and professional miners getting increasingly serious about their roles by setting up bigger rigs and getting themselves established in areas with low power costs in order to mine more extensively.

What this has resulted in is a more professionalized mining pool as it pushes out the more amateur users while the value of Bitcoin slumped to $6,000.

“There are still major expansions happening, especially from more efficient miners,” argues Marco Streng, the current CEO of Genesis Mining, said by phone from London. “The expansion is so big that it compensated for the drop-out of not-so-efficient miners.”

For those who are unfamiliar with the act of mining, any number of miners compete with eachother to solve increasingly complex puzzles, all in exchange for a various number of tokens. As the hash rate increases, the more challenging the puzzles become, this is all in response to the growing sophistication of the hardware being used to mine them. It also serves to prevent a monopoly from developing, where only a select few are able to mine Bitcoin.

One of the impacts of this escalating challenge is that it has contributed towards the ongoing battle of graphics cards and semiconductors such as Nvidia and Taiwan Semiconductor Manufacturing Co. One of the plus sides to this is that it has created an even greater level of professionalization, with collections of miners forming full-fledged companies like Bitmain and Bitfury.

While the increase in the hash rate within the mining process has coincided with rallies in the value of Bitcoin in the past, to suggest that the two are directly intertwined is not such an easy conclusion to finish on.

This correlation would mean that the hash rate effectively dictates the underlying token price which isn't the case. But it can be argued that the past expansions to capacity, resulting in an increase in computing power, which are a sunk cost to miners and reflect higher prices earlier. It’s also possible that miners will sell more of their holdings as margins get squeezed.

David Sapper, the current CEO of the cryptocurrency exchange Blockbid Pty Ltd. in Melbourne, offered some insight into this current trend:

“The increased hash rate means people are here for the long-term because they’re happy to just accumulate what they have, potentially even run at a loss,” Sapper continues with regards to less fortunate miners, saying “they do sometimes have to clear house and dump.”

In the past, analysts from a number of financial institutions have attempted to provide an underlying estimation for what the break-even would be for the average miner working to extract Bitcoin, and the amount fluctuates on some occasions. For example, Bullish research firm Fundstrat Global Advisors conducted research recently that suggested that the break-even for miners would sit at roughly $8,000.

Morgan Stanley, in 2017, set the bar a little higher, suggesting that major mining organizations could only stand to break even or turn a slight profit if Bitcoin's valuation rested at $8,600 in a disclosed study on CNBC. Another study was conducted by a number of researchers from CoinShares, which offers cryptocurrency investment products to customers, back in April, they found that the average marginal cost of Bitcoin stood at $6,400. On Thursday of this week, Bitcoin traded at that precise level for a time.

One of the factors that weigh into consideration is the underlying efficiency of the equipment used by the miner (or miners) in extracting Bitcoin. One example being Genesis Mining, which is in the process of increasing capacity, according to Streng.

Miners that are also involved in the manufacturing of new mining equipment also have a more distinct advantage as they'd have ready and rapid access to new equipment, while also allowing them to adjust their prices accordingly, according to the report from CoinShares.

“The efficiency of the hardware is rapidly increasing and costs are coming down,” the researchers Christopher Bendiksen and Samuel Gibbons wrote. “Miners are securing access to highly competitive sources of electricity, often ones that would otherwise lie idle, and show high degrees of mobility.”