The so-called hash rate, or total computing power, of the Bitcoin (BTC) network continues to fall. According to BitInfoCharts, the hash rate stood at 91.2 exahashes per second (EH/s) on June 20, the lowest since early November 2020.
BitInfoCharts shows that on May 13, an all-time high (ATH) of 171 EH/s was reached, a drop of almost 50% in just over a month. Other websites show slightly different hash rate figures, but that’s because these are estimates.
The reason for this huge drop is mainly in China. Chinese mining farms are responsible for a huge part of all bitcoin mining, an estimated 50 to 65%. However, the country has been cracking down on the cryptocurrency industry in recent weeks, forcing more and more provinces to close mining farms.
The recent occurrence in Sichuan in particular is causing a major blow to the hash rate. In Sichuan there is a large hydroelectric power station that supplies surplus power to many mining farms during the rainy season for very cheap. Last week, these farms were cut off from the power grid. Shortly afterwards, the city of Ya’an also announced such a ban.
The falling hash rate also caused a drop in the so-called mining difficulty last week. Two adjustments down in a row is already rare, but it looks like we may see a third in a row next week.
Bitcoin price and hash rate appear to be highly correlated. In April, when bitcoin crashed for the first time this year, we also saw the hash rate drop just as hard due to an incident in China. Still, it’s hard to tell if the price follows the hash rate or vice versa, a kind of chicken-and-egg problem.
This morning, prices took another hit, which may be related to this declining hash rate as well as increased fear, uncertainty & doubt (FUD) from China. This morning again negative news from China came out. A ministry had published another statement about an old ban and then quickly removed it, reports Colin Wu of Wu Blockchain. He speculates that the message has been removed because the central bank will release a statement later today.
The reason for China’s crackdown on mining seems to be that China is getting closer to issuing a central bank digital currency (CBDC). However, this decline may be temporary and more and more miners are starting to move to the United States, especially Texas seems to be very welcoming of Chinese miners.