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Academy Industry Analysis Article
Bitcoin

Bitcoin’s Hash Rate Likely to Drop and Price Will Face Pressure Short-Term Post Halving: Analysis

2020.04.17 Robbie Liu

Two major coins based on the Bitcoin (BTC) network finished their block reward halvings last week. According to OKLink data, Bitcoin Cash (BCH) — a hard fork of Bitcoin — reached a block height of 630,000 at 12:20 UTC on April 8 and triggered the halving event that reduced the network’s mining rewards from 12.5 BCH to 6.25 BCH per mined block. 

The halving of Bitcoin SV (BSV) — a hard fork of Bitcoin Cash — arrived just a short time after BCH’s and approximately one month prior to Bitcoin’s. On April 10 00:48 UTC, BSV completed its 50 percent block reward reduction event.

Post-halving hash rate plunge

Data from Bitinfocharts.com shows that both BCH and BSV experienced a significant hash rate — the speed of crypto mining devices — plunge the day after their halvings. BCH’s hash rate dropped about 50 percent, from 3.58EH/S to 1.85EH/S, and BSV dropped 70 percent from 3.01EH/S to 0.92EH/S. 

BCH vs BSV hash rate historical chart. Source: bitinfocharts.com & OKEx

The plunge was divided into two parts. First, BCH’s hash rate took a loss after its halving on April 8, while BSV’s hash rate meanwhile increased. Second, after BSV’s halving on April 10, the hash rate of BSV decreased significantly, and part of the computing power on that network flowed to BTC’s. 

This phenomenon can be explained by the fact that post-halving, if coin prices and mining fixed costs remain unchanged, the income of miners drops nearly by half. That means continuing to mine on post-halving chains will be less profitable. The higher the hash rate, the more intense the mining competition, and vice versa. 

Sharp declines in hash rate indicate that many miners have shut down their mining rigs or moved their power to other coins. 

OKEx analysts predicted this situation in a previous Market Watch Weekly article, noting that  “in the gap between the halvings, we'll see many miners migrate to the BTC network to mine more profitably, making the network hashrate go higher and the average cost of mining more expensive.” 

The current hash rate of BTC picked up aggressively to 119EH/S, as of April 14, a roughly 20 percent increase from BSV’s halving day (April 10), per Bitcinforcharts.com data. Additionally, the BTC chain now controls more than 95 percent of hash rate distribution among all three blockchains, according to data from Coin Dance.

BTC hash rate historical chart. Source: bitinfocharts.com

The last notable computing power battle in crypto was at the end of 2018, when BCH hard forked and BSV was created. Back then, the hash war between BCH and BSV almost led to a mining death spiral for Bitcoin, since both forked chains sucked the computing power out of the Bitcoin network. That time was also the bottom-out period of Bitcoin price, when it hit around $3,800. 

Prices are consistent with hash rate changes

On the price side, all three coins' price dumps coincided with the end of BSV’s halving. Bitcoin dropped by about 7 percent  in the 24 hours after BSV’s halving, BSV itself dropped as much as 15 percent in the same period, and BCH dropped roughly 10 percent.

On the other hand, both BCH and BSV experienced a quick rise in the seven days leading up to their halvings. BCH made a total rise of nearly 20 percent in seven days, and BSV rallied more than 30 percent  in the same period. BTC was up just 10 percent that week.

BCH vs BSV vs BTC 1H chart. Source: TradingView

Bitcoin’s price post-halving

Last week's halving events can be seen as simulations of Bitcoin's upcoming halving in May. BSV’s price peaked about two months before the halving, and BCH peaked in the same time period. 

Based on this pattern, a reasonable prediction would be that BTC either has already reached its recent peak in mid-February — when the coin was trading over $10,000 — or will start a new bullish trend two weeks before its halving. After its halving, Bitcoin’s hash rate will likely fall and the price will be under pressure. 

BCH vs BSV vs BTC 1D chart. Source: TradingView

What other analysts are saying

Data analytics and intelligence firm Xangle’s researchers noted in a report published on April 9 that despite the major price and hash rate increases BTC has previously witnessed after each halving, they warn that the third halving might be different. The report also notes that miners were the “most affected” out of all market participants involved with BTC’s halving.  

But some miners are more optimistic. According to another research report published on April 7 by the mining operation Genesis Mining, more than half of poll respondents think the price of BTC will rise after the reward reduction.

Other analysts from the crypto community have questioned whether or not the effect of the upcoming halving has already been priced in. Others — looking more long-term at the trends that followed Bitcoin’s previous halvings — have implied that that cryptocurrency will hit a new all-time-high price at some point post halving. 


Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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