The latest Glassnode report focuses on the topic of the day: bitcoin mining. While bitcoinโs price has been suspiciously flat for a while, the difficulty adjustment came in and registered an all-time high. Do the miners know something we donโt? Or is there a transfer of power going on behind the scenes? Glassnode poses a working theory on their latest The Week On-Chain. To begin with, Glassnode puts the difficulty adjustment into perspective:
โBitcoin hashrate has reached a new all-time-high of 242 Exahash per second. To give an analogy for scale, this is equivalent to all 7.753 Billion people on earth, each completing a SHA-256 hash calculation approximately 30 Billion times every second.โ
The thing is, weโre in a bear market. The sentiment is fearful. Thereโs trouble brewing everywhere in the world and bitcoin has been boring for a while now. What could be the reason for a hashrate all-time high? Is it, as Glassnode theorizes, โa new dynamic as more of the hashpower is held by better capitalised publicly traded mining companiesโ? Or is it just the game theory behind bitcoin at work? Remember that mining revenue is also down and the cost to produce one bitcoin is going up in tandem with electricity prices.ย
Making the situation more volatile, the miner revenueโs bitcoin is at a low point. This โshould, in theory, create elevated income stress on the mining industry.โ Add bitcoinโs stable prices to that equation and, what do we have? โIt is extremely rare for BTC prices to stay so stationary for long, suggesting heightened probabilities of volatility on the horizon.โ
Bitcoin Hashrate All-Time High | Source: The Week On-Chain
Bullish Signal: Bitcoin Hash-Ribbons Unwind
According to Glassnode, โthe Bitcoin hash-ribbons commenced an unwind in late August, providing an indication that mining conditions were improving, and hashrate was coming back online.โ What does this mean and why is it bullish, though? โAlmost all historical hash-ribbon unwinds have preceded greener pastures in the months that followed.โ
According to Glassnode, since bitcoinโs price is still flatlining, the โhashrate rise is due to more efficient mining hardware coming online and/or miners with superior balance sheets having a larger share of the hashpower network.โ Thatโs the base of Glassnodeโs takeover theory.
Glassnode Proposes โThe Mining Halvingโ Concept
Another of their wild theories, Glassnode poses that โa 66% increase in Difficulty and Hashrate since Oct-2020 corresponds to an approximate halving in revenue per hash.โ And to support that, they provide these numbers: โthe revenue earned per Exahash has been in a persistent and long-term downtrend, with the BTC-denominated reward currently at an all-time-low of 4.06 BTC per EH per day.โ
So, if miners are getting destroyed by market conditions, why is the hashrate recording all-time highs? The answer might lie with the Puell Multiple, โwhich is a cyclical oscillator that compares the current daily mining revenue to their yearly average.โ According to this indicator, the mining business is actually gaining ground against previous performance.ย
โThe Puell Multiple hit the current lows of around 0.33 in June, indicating that miners were earning just 33% of their yearly average revenue. It has since recovered to around 0.63, implying a degree of stress relief, and adjustment to this new pricing regime.โ According to Glassnode, this relief might mean that โa true bear market low is established.โ
BTC price chart for 10/11/2022 on Bitstamp | Source: BTC/USD on TradingView.com
Glassnode Thinks Thereโs Still Capitulation Risk
Letโs be clear, bitcoin is walking a tightrope at the moment. The market is about to break and the pendulum could swing either way. Even though there are reasons to be optimistic, the smart investor should prepare for the worst. โBy numerous models, we estimate that the average cost of BTC production hovers just below current prices, such that any significant price decline could turn an implied income stress, into acute and explicit stress.โ
To assess the risk, Glassnode determined โthe aggregate size of miner balancesโ to 78.4K BTC. The owners of those reserves โmay come under income stress,โ but โIt is extremely unlikely this full amount would be distributed.โ
And thatโs where we stand at the moment.
Featured Image by Icons8_team from Pixabay | Charts by TradingView and The Week On-Chain
