Miners are returning to Bitcoin as difficulty drops and revenues reach all-time highs.
Bitcoin (BTC) miners collected $60 million on a thirty-day average timeframe as of May 5, showing the first signs of recovery after last month’s severe revenue drop that followed mass miner outages in China’s energy-rich provinces.
In April, coal mining accidents and subsequent inspections in Xinjiang lacerated energy supply to the regional cryptocurrency mining industry. That forced miners to turn off their Application Specific Integrated Circuit (ASIC) hardware, which exclusively generates computing power to secure and put the “work” into Bitcoin’s proof-of-work.
According to data from Blockchain.com, Bitcoin Mining revenue fell from its 30-day average peak of $60 million — recorded on April 16 — to as low as $57.08 million on May 2. The given resource collects miners’ data from block rewards and transaction fees paid to miners.
Bitcoin miners revenue. Source: Blockchain.com
The drop in profits coincided with a decline in the Bitcoin network’s hash rates, signifying that many ASIC hardware went offline after losing their chief energy source. The total hash rate per second (7-day average) plunged from a record high of 172 EH/s on April 16 to 131 EH/s on April 23, a drop of roughly 30%.
Bitcoin Hash Rate Source: Blockchain.com
It has since recovered to 168 EH/s on May 5, indicating that miners are resuming their bitcoin operations, following a considerable mining difficulty drop four days ago.
Effects on Bitcoin spot rate
Bitcoin prices suffered significant declines following China’s outages.
The benchmark cryptocurrency was already correcting lower after establishing a historical peak near $65,000 on April 14. The China FUD apprehensively accelerated the sell-off, causing the BTC/USD exchange rate to plunge to as low as $50,591 as of April 25.
BTC/USD 1-day candle chart (Coinbase). Source: Tradingview
Bitcoin’s price and hash rate drop occurred almost simultaneously, feeding another evidence about a higher positive correlation between the two metrics.
Simply put, the hash rate represents the computational power of the Bitcoin network. This means that the higher the hash rate, the higher the cost of theoretically “attacking” Bitcoin, making this metric synonymous with the network’s security.
The Bitcoin rate has recovered to a little over $55,000 as of Wednesday, much in line with the hash rate, signifying that the network reset is helping to maintain the cryptocurrency’s prevailing bullish bias.
More upside tailwinds come from Bitcoin mining difficulty projections. For example, data from BTC.com shows it should rise by a modest 1% in the subsequent bi-monthly (or 2,016-block periods) adjustment on Thursday next week.
The network difficulty, which shows how difficult it is for nodes on the Bitcoin network to solve the equations necessary for mining operations, had dropped 12.6% on May 2. That tends to increase margins for both inefficient and efficient miners, promising lower risks of Bitcoin sell-off at the producers’ end.
Meanwhile, with an upside adjustment looking more likely and mining activity rising on the Bitcoin network, the long-term bias for the cryptocurrency remains bullish.
An earlier report from Cointelegraph compared the correlation between Bitcoin prices, hash rate, and mining difficulty, ruling out that the first has a lagging correlation with the latter two despite the popular mantra, “price follows hash rate.”
The BTC/USD exchange rate had closed 2020 at $28,990 after Bitcoin’s network difficulty plunged to 17.438 TH/s from 19.679 TH/s in the November-December session. The period also saw a significant drop in the hash rate but left Bitcoin’s overall upside bias untouched.