Miners led the charge to one of the biggest sell-offs in recent history, and no one is paying attention to this change in the dynamic of bitcoin hash rate distribution. With China getting serious and banning mining activities in Sichuan, they essentially wiped out 90% of total bitcoin mining activities and forced miners out of the country. While this impacted the price of bitcoin in a big way, we still believe it will be one of the most significant developments in 2021.
Many market participants panic sold due to China cracking down and whales dumping their share of bitcoin, but no one saw it coming that individual miners initiated the sell-off by selling a part of their holdings. According to Coinmetrics, aggregate flows from miners are at an all-time high since March 2020. This validates the statement that miners have sold a portion of their holding.
Chinese miners were put in a difficult spot by the government officials when they abruptly shut down their power grid and mining activities. These miners travelled more than 2000km to leverage the rainy season in Sichuan, and at the same time, the CCP’s crackdown on mining was in action. The hash rate, obviously, dropped down tremendously, and it is also visible on chains, but the selling pressure is not significant compared to LTHs and other whales.
The biggest panic driver right now is daily hash rate figures. People have been using this volatile metric to make aggressive claims on the state of the market, but they forget it is impossible to have a consistent change in the daily figure by solely looking at chain data. This is another reason why the bitcoin hash rate dropped when Elon Musk claimed,”A single coal mine in Xinjiang flooded, almost killing miners, […] Bitcoin hash rate dropped 35%.”
Even the media likes to use daily hash rate data and make bold claims in their headlines. In reality, none of this is true, and daily tracking of hash rate does not show long-term changes in the mining landscape. That is why it is recommended to look at the 30-day implied hash rate, as it filters out unnecessary reactions caused by fear and only shows actual miner behaviour.
While recent events have caused chaos in the market, we still think it will have a positive impact in the long term, as people will no longer criticize bitcoin’s reliance on Chinese miners and the environmental impact caused by excessive use of fossil fuels.
With that being said, miners are suffering from this recent crackdown, and according to the bitcoin blockchain data, we see their revenue being only 13 million, an 8-month low daily figure. They cannot convert their bitcoin to cash, and even if they do, they have to sell it for a lower price than usual. With no proper resources and support, relocation to another new country is becoming extremely difficult.
While this geographical diversity may take some time, it is important to track the monthly implied hash rate. In the long-term, this will only make bitcoin more decentralized in every possible way, and short-term volatility is the price we have to pay. Chinese miners initiated the recent sell-off, on-chain shows aggregate flows are at all-time high
Born and brought up in India, Karthikeya Gutta is a crypto journalist and freelance contributor for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion towards blockchain and crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
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