The past few days have seen new all-time highs in the hashrate of Bitcoin mining.
In fact, this is a trend that has been growing since the beginning of the year and does not seem to want to stop. So it is possible that new records will be set in the coming weeks.
Bitcoin mining: the weekly hashrate peak
Taking weekly averages as a reference, the highest peak was reached on 12 October, at 456 Eh/s.
It is necessary, as usual, to reiterate that these numbers are not just point detections, or precise calculations, but only estimates. So they vary depending on who computes them.
In the specific case, the estimate of the maximum peak at 456 Eh/s is from Hashrate Index.
This is the estimate of the average of the last seven days, and it has been rising since the very last days of 2022.
At the beginning of 2023 it had risen above 270 Eh/s, after the drop following the FTX bankruptcy, but by the end of the month it had already jumped to nearly 300 Eh/s, recording a new all-time high.
During 2023 it practically did nothing but rise, rising first to 350 Eh/s in March, then to 400 Eh/s in July. In October, for the first time in history, it also crossed the 450 Eh/s threshold.
Note that during the 2021 bullrun it had never even risen above 200 Eh/s, so the current value is more than two and a half times that of the period when all-time high prices were recorded.
Added to this, the daily peak occurred on 11 October, but it was not above the all-time high of 15 September. Instead, the hourly peak occurred on 10 October, at the remarkable rate of 531 Eh/s.
Bitcoin mining: the growth of hashrate
The fact is that hashrate can only grow very slowly.
In order to grow the hashrate it is necessary to produce, purchase and activate new, increasingly powerful machines, which have a cost that is not at all affordable.
Moreover, a single machine only goes up to a maximum of about 350 Th/s, which is less than one millionth of the total 450 Eh/s. So to go even from 400 to 450 Eh/s requires more than 140,000 machines of maximum power.
This makes it clear why the hashrate increases so slowly, in the face of much larger and faster price movements instead.
It should be remembered that hashrate depends on the price of Bitcoin, because all mining takings take place in BTC.
Since mining has high costs, and since the BTC that is cashed in is more or less always the same, if the market value of Bitcoin goes down, expenses need to be reduced, and this is done by shutting down some machines.
In fact during the last months of 2022, when the price of BTC fell below $16,000, the hashrate went from 227 Eh/s to 197 Eh/s. As the price rose back above $25,000 during 2023, hashrate growth began again.
The profitability problem
The problem, however, is that hashrate has been increasing more than the market value of BTC since August now, thus reducing the profitability of mining.
In other words, costs have increased, but revenue has not increased accordingly. This has significantly reduced profit margins, with profitability falling from $0.08 per THash/s per day to the current $0.06.
The current level, however, is still higher than the $0.05 per day per Th/s touched in late 2022, when the price was less than $16,000 and the hashrate less than 200 Eh/s.
The fact is that in the meantime much more efficient machines have come on the market, that is, machines that produce more Th/s for the same expense.
The big growth in hashrate in 2023 is not only due to the increase in the price of Bitcoin, as this has been hovering around $27,000 for a good seven months now, but mainly due to the increase in efficiency of mining machines.
And that is why it may continue.
The halving problem
But miners face another problem: the impending halving.
In fact, the April 2024 halving will halve the premium for miners, who will then be forced to shut down the least efficient machines.
Indeed, it is possible that precisely in anticipation of the halving, miners are squeezing the maximum out of precisely those machines that they will have to shut down permanently after halving because they have become too inefficient.
It may be that this factor also affects hashrate growth, as the least efficient machines also make up the numbers.
Once they are shut down, average profitability will probably increase while reducing hashrates. The good thing is that halving is a completely predictable phenomenon, so it will not catch any miner by surprise.
Nor can it be ruled out that many miners are trying to hoard BTC now that the price is well below the highs, in the hope that the BTC mined today may be worth much more tomorrow.
For since hashrate depends on price, eventually costs also depend on market price, since these vary with hashrate.
When miners reduce hashrate, as will likely happen after halving, they actually reduce costs as well, and this happens even when prices are falling sharply, as in late 2022.
However, the same thing applies in reverse, that is, if the price of Bitcoin over the next few years goes up it will be much more expensive to mine.
For this reason, some miners may think it is worthwhile to mine them now that prices are lower than two years ago, in the hope that they will rise in the future.