Earlier this week, during Bitcoin's block reward cutting event, a digital asset manager named Charles Edwards speculated predicted it would be the harshest halving in history, indicating that miners barely making profits might have to quit due to halved earnings.
While some dismissed these concerns as mere FUD, the cryptocurrency market's unpredictable nature proved Edwards right, with analytics groups confirming a steep drop in Bitcoin’s hash rate.
Yet, this isn't necessarily a negative outcome.
Bitcoin Hash Rate Plunges 30%
On May 11th, Bitcoin went through its third reduction in block rewards as block number 630,000 was added.
Initially, following the halving, miners appeared unaffected, untouched by the severe 50% revenue drop Edwards foresaw. Data from CoinWarz, a cryptocurrency mining platform, showed that eight hours post-halving, Bitcoin's hash rate was ticking along its weekly average.
But the scenario has shifted as days passed since the halving. As per data on May 14th from blockchain analytics firm Coin Metrics, the halving began revealing considerable effects on the Bitcoin ecosystem.
The hash rate, essentially the computational power driving transactions, has plummeted by 30%, slowing the network by roughly 25%, all while transaction queues grew and fees rose due to processing delays.
Within 48 hours post-halving, significant outcomes have been observed on #Bitcoin
As inefficient miners exit due to the 30% hash rate drop, efficient ones are expected to take over after some initial turbulence. pic.twitter.com/X7Vk7Hz0zb
— CoinMetrics.io (@coinmetrics) May 14, 2020
While miners attempt to maximize profits amidst hash rate fluctuations, an immediate rise doesn't seem likely this time.
The hash rate decline aligns with insights from Matt D’Souza, a hedge fund manager and CEO of Blockware Mining.
D’Souza noted that if Bitcoin hovered around $8,000 to $9,000, over a third of miners would operate at a loss, increasing the risk of drastic exits as they might cease operations and liquidate their Bitcoin.
A downturn in hash rate isn't inherently negative
Though the term 'capitulation' has historically unnerved Bitcoin holders, especially after 2018's crash, it might not be detrimental now.
mentioned that following the 2016 halving, Bitcoin prices stagnated for nine days, then saw a 28% dip before returning to pre-halving levels after about 100 days. One should mentally ready themselves for these adjustments as protocols recalibrate for future takeoff.
Also, data compiled by Edwards suggests indicated that after each miner capitulation in the past, markets surged robustly. Edwards’ analysis corroborates this, showing that historical signalings of capitulation via the Hash Ribbons indicator have consistently preceded major market leaps.
The halving still plays into Bitcoin's potential for growth.
While the halving might squeeze miner profits, experts remain optimistic about Bitcoin's long-term bullish potential.
In a comment made on aa session themed around Bitcoin halving was moderated by ex-J.P. Morgan executive Tone Vays, with Gemini founders Tyler and Cameron Winklevoss noting that the halving sets the stage for Bitcoin's next exponential surge in size.
We’re poised for another vast leap ahead — possibly establishing $20,000 as a baseline for Bitcoin, potentially reaching $100,000. With each halving, cryptocurrency expands beyond our imagination.
