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    Even with half of the miners disconnected, Bitcoin shows its robustness

    Key facts:
    • The average interval between mined blocks reached a maximum of 30 minutes.

    • From an average of 180 EH/s, the hash rate reached a minimum of 65 EH/s.

    Bitcoin price volatility, which has declined noticeably in recent weeks, appears to have moved towards mining metrics, glassnode’s latest report says. The Chinese government’s restrictions on the operations of bitcoin miners caused a record drop in the network’s hash rate.

    Referring to the week of June 28 to July 4, when the exodus of Chinese miners was accentuated, Glassnode argues that the resilience of the Bitcoin protocol is remarkable. “Blocks continued to be mined and transactions processed that week, even as 50% of the industry moved its facilities and capital was reallocate to other jurisdictions,” the report said.

    “The metrics addressed in this report help characterize and weigh the magnitude of this incredible displacement that is in full swing,” he says. the study.

    Average interval between mined blocks

    When a significant proportion of the hash rate decreases before a difficulty setting, the blocks are mined at a slower rate. In the aforementioned week, the interval between blocks grew to 1,958 seconds, or 32.6 minutes, the report notes. This is 226% greater than the 10 minutes or 600 seconds that characterize the rate of bitcoin block mining, glassnode points out, and clarifies that this delay occurred on June 28.. Then the pace began to gradually recover.

    Evolution of the bitcoin hash rate in 2021. Source: Glassnode.

    This is the longest block mining time in bitcoin history, except for the cypherpunk era, during the first year of the cryptocurrency, when it wasn’t even priced, the report states.

    The chart below shows another record interval of 1,774 seconds, the second highest since 2010, which occurred at the final peak of the 2017 cycle, shortly before the all-time high near USD 20,000.

    The second largest Bitcoin block interval, after 2010, before the 2017 high. Source: Glassnode.

    Evolution of the hash rate in 2021

    Glassnode states that between the period from April to May, the hash rate on the network averaged 180 EH/s. From these levels the hash rate fell to an all-time low of 65 EH/s, as reported by CriptoNoticias. This occurred at the time that the average block time reached its peak of 1958 seconds, on June 28, as shown in the graph below.

    Hash rate from January to July 2021. Glassnode font.

    “Since then, the hash rate has recovered and stabilized around the range of 88 to 110 EH/s, reflecting a decrease from 38% to 49%,” the report says. This provides, according to Glassnode, an indicator of the proportion of the network that is offline by the ban in China.

    The inversion of the difficulty tape

    When the moving averages of bitcoin difficulty from different periods are represented in the same graph, those faster, for example 9 days or 14 days, are typically above long-term moving averages, the report explains. This forms the so-called tape or difficulty band, a metric introduced by Willy Woo in 2019, as reported by CriptoNoticias.

    If short-term averages fall below long-term averages, a difficulty tape reversal occurs, a rare scenario associated with capitulation of miners and large holders.

    The inversion of the difficulty tape occurs in bearish scenarios. Source: Glassnode.

    “Now that the difficulty of the protocol has been reduced, we can see that the difficulty tape has been reversed to the maximum since the 2018 bear market capitulation,” the study states. This inversion of the difficulty tape usually represents a capitulation event of the miners, usually observed at the end of bear markets, the report notes.

    Also, the inversion of the difficulty tape can occur after the halvings, as seen in the chart above, when miners’ income is reduced and profitability is affected, according to the authors. There was also that reversal in the fall in the markets in mid-March 2020. The so-called great migration of minerss, also triggered this bearish cut scenario, as Glassnode points out on the chart.

    Boom in the income of bitcoin miners

    While the change in order of the difficulty curves has preceded upward phases, this time the logistics costs of the miners would have forced them to sell part of their accumulated BTC, the report states. However, the authors note, there was in return an increase in income for the 50% of the miners who remained operational.

    Glassnode highlights in the chart below that when the price of bitcoin was in the range of USD 50,000 to USD 60,000, miners received income between USD 50 million and USD 60 million daily. “While bitcoin prices have since declined by around 50%, for miners who became operational, between 38% and 49% of their competition was disconnected in the short term.

    Lower incomes after migration are shared among fewer miners. Source: Glassnode.

    The miners’ profitability, during the migration, is then similar to what they had in April, glassnode says.

    Following the expenses of bitcoin miners

    Glassnode uses the Miners Outflow Multiple (MOM) metric that tracks miners’ expenses relative to their annual average. When examined, miners dramatically reduced their spending, even during the great migration, the study says.

    There is a cyclical pattern in miners comprising a HODLING or retention phase (in green in the chart below), according to the report. At this stage the MOM is flat, unchanged.

    The Miners’ Outbound Flow (MOM) metric estimates their expenses. Source: Glassnode.

    Then, there’s mom’s accelerating (red) phase of rising, when miners take profits in a market up front. Finally, when the market reaches a maximum (blue), the miners slow down sales, and the MOM decreases.

    In the current up cycle, according to the chart, miners curbed their spending in 2021, after a period of accelerated spending from October 2020 to January 2021.

    Evolution of the unspent supply of miners

    Glassnode proposes another perspective on miners’ spending, in which it takes into account the expenses with respect to the BTC retained. Historically, miners have spent more BTC than they accumulate, so what was actually retained was declining, the report states.

    The following graph shows the change in this pattern, because in 2020 not only did the decreasing slope decrease, but, from July of that year, the trend is slightly increasing. In other words, miners have started stockpiling BTC, the authors argue.

    Evolution of the unspent supply of miners. Source: Glassnode.

    Among the financial and technical factors underpinning this accumulation, the study cites the macro-monetary outlook in favor of bitcoin that materialized in 2020, miners’ access to various financing options, and the entry of little new mining competition into the market, due to limitations on global ASIC chip manufacturing capacity.

    Glassnode points out that by decreasing the issuance of BTC by 40% on June 28, the ratio of reserves to the flow (S2F) reached 140 that day, which made bitcoin, for that day alone, an asset 2.37 times scarcer than gold.

    As a sign of the resilience of the Bitcoin network, despite the sharp decrease in the hash rate that caused unusually long intervals between blocks, it began to stabilize and the intervals have fluctuated again around the expected value of the 10 minutes. This is shown on one of the block range tracking sites, bitinfocharts. Even in the midst of the record migration of miners, their incomes resemble the values of last April, at the height of the upward peak.

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