Despite the prolonged bear market, the global Bitcoin mining hashrate continues to grow.
Indeed, according to CoinWarz data, a new hourly high was reached on Monday, 31 October, at more than 304 Eh/s.
However, the absolute daily high was not touched, since the one from 11 October at 294 Eh/s remains.
It is worth mentioning that these figures are not exact readings, because the global hashrate cannot be accurately detected. They are only estimates obtained by calculations from block-time.
The block-time: how Bitcoin mining varies when the hashrate varies
After a peak of 11.8 minutes marked on 25 October, block-time dropped to as low as 8.3 minutes precisely on 31 October.
Based on calculations made by BitInfoCharts, the average daily hashrate that produced such a low block-time would have been just over 280 Eh/s, which is lower than that of 11 October. Moreover, the block-time on 31 October would seem to be an anomaly, since the beginning on 11 October it had always been above 9 minutes, and also often above 10 minutes.
Thus 31 October was an anomalous day in terms of Bitcoin mining, with an unusually low average block-time.
The block-time is adjusted by the difficulty, which in turn is updated once every two weeks or so. The latest update was the increase on 23 October, which produced precisely an increase in average block-time. The latter should always be around 10 minutes.
In September, the average block-time was around 10.1 minutes, while in October it rose to 10.6 minutes. This means that, paradoxically, despite the bear market the continuing hashrate records are not at all abnormal.
Indeed, further increases in the difficulty in November would even seem likely at this point.
The yield of Bitcoin mining: the relationship between hashrate and difficulty
All of this inevitably translates into a continued reduction in the profitability of Bitcoin mining.
Indeed, miner earnings are all always in BTC, so if the market value of BTC falls then the actual profits from mining inevitably fall as well.
According to some estimates, the current average earnings from Bitcoin mining are among the lowest ever.
The lowest peak of this period was reached on 22 October, when the price of BTC was just over $19,000, with a hashrate of over 270 Eh/s. Such a combination caused the gain to plummet to $0.06 per day per Th/s.
It is very strange that with such low earnings the miners not only continue to mine, but even increase their computing power (hashrate) and thus their costs as well.
However, an explanation could also be there.
The past landscape
First, it is worth mentioning that the hashrate is growing very slowly, so it is possible that it is still growing in response to last year’s bullrun.
In October 2020, when the bullrun had not yet started, hashrate was about 140 Eh/s, or just under half of the October peak. At that time, the price of BTC was about $11,000, or a little more than half of what it is today.
So the current hashrate level is in line with that just before the start of the last big bullrun, in proportion to the price level.
Something similar happened during the previous cycle, which began in July 2016 with the second halving.
Before the great speculative bubble of 2017 was triggered, the hashrate was about 4 Eh/s, with a BTC price below $1,100. By December of that year, the price of BTC had skyrocketed to nearly $20,000, while hashrate had only risen to 15 Eh/s.
That is, Bitcoin’s market value had increased 20 times, while hashrate less than 4.
This gap took more than a year and a half to catch up, with hashrate continuing to rise until September 2018, when it reached 55 Eh/s. By then it had multiplied about 13 times, while the price of BTC had meanwhile fallen to $6,300, or only six times the starting price.
So the long wave of the bullrun continued to drive the hashrate up again for more than a year and a half after the speculative bubble burst, so much so that it rose too high. In fact, in December it dropped to 33 Eh/s, when the price of BTC fell below $3,500.
A similar phenomenon may be underway again this year, with exaggerated growth in hashrate in the post-bubble year due precisely to the slowness with which this metric manages to rise.
Indeed, similarly to late 2018, current price levels in late 2022 do not seem to justify such a high hashrate.
The efficiency of the mining equipment
There is also another dynamic that may have had a significant impact.
In fact, over the past few years much more efficient Bitcoin mining machines have come on the market. These machines are able to express significantly higher hashrates than their predecessors, but with similar power consumption.
Thus their operating cost does not vary, but the hashrate still increases. This is probably also why in recent months, despite the fact that the price of BTC continues to lateralize around $20,000 the hashrate still continues to increase.
Probably until May 2022 the increase in hashrate was generated by the long wave of the 2021 bullrun. In fact, between June and July, due to the sharp decline in the value of BTC, it had temporarily declined.
It started to rise again in August, when the price of Bitcoin recovered slightly. However, it continued to rise in September and October, which is when the price of BTC continued to lateralize around the $20,000 mark.
The increase in hashrate in the past two months seems to be really mainly due to the increase in efficiency of the new machines, so it might also hold in case the price of BTC does not fall further.
In light of this, it is also possible to speculate that the calculation by which the metric of average mining profitability is estimated may not be correct.
One can ask the question of whether those making such calculations have taken such an increase in efficiency into correct consideration, because for the same hashrate it means lower costs and thus higher profitability.
In case they had correctly taken into account the parameters related to the increased efficiency of the mining machines, one might infer that such a low real profitability indicates a clear hope on the part of the miners that the value of Bitcoin will go up in the future.
Instead, in case they did not take this parameter sufficiently into account, the estimates of current profitability may simply be wrong.
Taking October 2020 values as a reference, i.e., those just prior to the last bullrun, then the hashrate was about 140 Eh/s with profitability at about $0.08 per day per Th/s. Currently, the hashrate has practically doubled, while the profitability has only reduced by 25%, compared to a doubling of the value of BTC.
This 25% reduction does not seem to be justified, because with an increase in hashrate of 92% against an increase in BTC value of 81% one might expect a smaller reduction, especially given the increase in efficiency.
Therefore, the current calculations for the profitability estimates may not be correct because they may have underestimated the increase in efficiency of the mining machines.