Last night, Bitcoin difficulty fell by almost 16%, the largest decline in difficulty since November 1, 2011. Compared with the average hashrate of 118.4 EH/s in the previous epoch, the current epoch average hashrate came in at 99.59 EH/s.
During a difficulty epoch, the daily hashrate is perfectly correlated to the number of blocks mined, because hashrate is estimated based on the current difficulty and the number of blocks mined (or average block time). What is interesting is that hashrate and blocks mined fell throughout the epoch, while price recovered modestly from under $4000 to over $6500, after beginning the epoch at almost $8000.
The continued decline in hashrate during the epoch could be driven by miners’ increasing risk aversion in the face of extreme volatility on 3/12. However, mining profitability on older-generation S9 / equivalent mining rigs, while poor, recovered modestly during the period, aided by both rising price and falling network hashrate. This could be explained by the stochastic nature of the mining process — i.e. it could have been sheer bad luck that so few blocks were mined, but we view it extremely unlikely that this mining slowdown is random luck.
Figure: Cash mining cost per BTC at different electricity price
Figure: Post- Halving cash mining cost per BTC at different electricity price
Note: Red cells denotes the cash mining cost per Bitcoin for the device / power cost combination is more than the present BTC spot price of $6619
It is worth noting that hash rate has bounced back today after the difficulty reset, and is back at 101 EH/s, similar to the prior epoch average but far above the 75 EH/s seen yesterday. This is consistent with our view that some hash has come back online post-reset to take advantage of the increased profitability afforded by the reduced block times — i.e., incremental hash today results in excess blocks mined above the 144 target daily average, so the BTC flow to older gen rigs exceeds what it would have been in the prior epoch.
We conclude that a meaningful amount of low-profitability equipment — either older-gen rigs or newer rigs at facilities with more expensive power costs are coming back online today — roughly 25 EH/s worth (1.8 million S9 equivalent rigs, though many are newer).