BTC Mining Profitability Drops Sharply; 40% Decline in Hash Rate to See ‘Healthier Margins’
- Hash rate falls 40% from ATH, indicating miners are decreasing mining resources dedicated to the network
- Now unprofitable for many miners to continue their operations
Over the past two weeks, investors have been aggressively making an exit from the risky assets and seeking safety to cash-like assets as Covid-19 concerns push the global economy towards recession. Nations across the world have declared national emergencies and instituted lockdowns.
As investors jumped into cash and US bonds, digital currency prices also took a beating. Last week, Bitcoin had one of its largest sell-off in history. This had the trading volume to surge near record highs. This decline in the price of the leading cryptocurrency follows a similar trajectory as other assets like US equities which posted their second-worst daily decline in history.
Bitcoin prices along with risky assets worldwide have been declining over the past month but despite that, on March 1st, the hash rate of the bitcoin network made a new all-time high.
A rising hash rate indicates that miners are increasing mining resources dedicated to the network.
The break-even points of bitcoin mining operators change as cost drivers change that includes changes in the network difficulty, which has been rising alongside the hash rate ever since December 2018. This resulted in increasing the break-even points.
According to TradeBlock, throughout January and February, Bitcoin miners were operating at “healthy” profit margins, meaning the break-even point was below the market price of bitcoin.
However, as miner break-even points remained near highs while the bitcoin price fell sharply, it put miners into a loss.
As miners are mining bitcoin on negative profit margins, the hash rate has declined nearly 40% from its ATH. Given the deep decline of BTC price, the hash rate is expected to see even a larger drop as miners reduce resources dedicated to the network.
“Due to the declining BTC price, it is now unprofitable for many miners to continue their operations,” noted crypto analysis company Glassnode.
“Since its peak on March 7th, the 7DMA of Bitcoin's hashrate has fallen by ~16% – with hashing power disappearing even faster after the drop to $5k.”