CRYPTO MOVERS AND PRICES
Major cryptocurrencies were marginally lower this morning with the exception of Binance Coin (BNB) and BCH. Dogecoin (DOGE) has seen some of the heaviest losses in the Top 10 after having appreciated by about USD 41 billion, or 400%, over the past week.
Crypto Story of the Day
A drop in the BTC hash rate occurred over the weekend with crypto news outlets pointing to coal mining accidents in China as the cause. We believe it was unlikely that the move was a major contributor to the weekend price decline.
According to crypto news outlets, coal mine accidents in China’s Xinjiang Region over the past 2 weeks have caused delays in coal shipments to data centers in the region, causing shutdowns of BTC miners. According to the Cambridge Centre for Alternative Finance, last year Xinjiang accounted for roughly 35% of China’s share of global hash rate, estimated at approximately 65%.
According to hash estimators, which are freely available online, the BTC hash rate dropped anywhere from 25% to 50%. BTC’s next difficulty adjustment (BTC difficulty programmatically adjusts in order to either dissuade or attract more miners to the network) is slated for May 1 and is expected to drop between 11-25%. Network data shows that the average time it took for miners to add blocks to the network on Saturday increased to 948 seconds, up from an average of 561 seconds since January 2017.
Increases in the aforementioned metric, also known as the block interval, are indicative of drops in hash power and have previously seen significant spikes. For example, following the aggressive BTC selloff of March 12-13, 2020, the average daily block interval topped 935 seconds but recovered to normal levels afterwards.
This weekend’s event coincided with a drop in the total amount of transactions on the network, which on Saturday totaled 194,000 compared to an average of 288,000 since January 2018. However, the BTC mempool, transactions broadcasted to the network but waiting to be confirmed, didn’t increase in size, indicating that the network didn’t become congested. Exchanges, which halt deposits or withdrawals due to network issues, i.e. Ethereum’s Berlin upgrade issues, didn’t do so in regard to BTC.
The BTC hash rate has experienced sharp declines in the past due to external events impacting miners. For example, in August 2020, heavy rainstorms in China’s Sichuan region caused an estimated 15-20% drop in hash rate. The price of BTC, which was trading in a tight range near USD 10,000 at the time, was unaffected.
Despite some effects to network usage, the BTC network has continued to perform normally. One of the best indications of the network’s normal performance is that exchanges continued to process BTC transactions. The network also reacted to the event as designed: BTC’s next difficulty adjustment will lower the cost of mining and will bring new mining equipment online, leading to a recovery in the hash rate.
Disruptions to the production of established commodities, such as oil, do take place, and this episode shows that BTC has the capacity to continue functioning despite external pressures placed on its miners. Furthermore, speculation that the event was linked to the weekend’s selloff is unlikely given the limited practical effects on BTC users.
Ultimately, drops in hash power due to external events are a normal aspect of BTC’s functioning that the network is designed to cope with.