Block geeks recently posted an article on Why Did the Bitcoin Hashrate Suddenly Plummet Down?
The premise of the article is that a power outage may have been the cause of the drop off in the hashrate, which led to Bitcoin miners temporarily coming offline. This may have been the case and they conjectured that it may have been a power outage in Khazakstan or Venezuela which caused it.
In the article, they note that, “Squire Mining LTD recently announced in a press release that its mining operations in Kazakhstan might suffer from a temporary outage. The Company’s hosting provider has also advised that the outage is expected to last between 10 – 14 days. Obviously, other mining pools in the area must be suffering from the same power outage problem.
This begs the question, how much is Kazakhstan’s overall mining power? It was not too long ago that the country was looked at as the next mining hotbed. Firstly, they had cheap electricity. In fact, according to this article, only Venezuela, Argentina, and Algeria offer more affordable energy prices.”
But, Khazakstan are not even in the top 20 countries for Bitcoin miners as you can see in the chart below.
Top 20 Countries Running Bitcoin Nodes
Above: Bitcoin Top 20 Countries Chart as of Feb, 24th 2019
As you can see, the USA are the largest miners followed by Germany & France followed by Canada at number six. So, it is likely that a disturbance in these territories may have affected the hashrate.
As Block Geeks notes, it is unlikely that miner profitability is the issue, “Yang Zuoxing, founder and CEO of MicroBT, announced in a keynote speech that the company had made $400 million in just a few months. MicroBT creates the WhatsMiner bitcoin mining equipment. According to Zuoxing, their M20 series models have been selling like hotcakes and they have already delivered over 100,000 units and expect to deliver 200,000 by the end of September. If mining profitability really is the issue behind this exodus, then it makes no sense for miners to keep buying such expensive mining equipment”.
But, it is also unlikely that a power outage in Kazakhstan would have a major impact. So, where else have there been major power outages?
California. Recently, the wildfires in California have caused power outages. The utility company, PG&E (Pacific Gas & Electricity) had to shut off power to 48,200 customers in northern California due to wildfire risk.
The outage is a precaution to lessen the risk of the company’s equipment starting a wildfire during especially dry and windy conditions.
It is the second consecutive public safety power shutoff that PG&E had to initiate last week. The shutoff affected seven counties: Butte, Napa, Nevada, Placer, Plumas, Sonoma and Yuba.
The power was cut off for up to 48 hours.
21 Inc. is a Bitcoin mining company based in California. 21 runs a large amount of miners, but also sells low powered bitcoin miners as part of their 21 Bitcoin computer. Most of the hash power from the 21 Bitcoin computers points towards 21’s mining pool.
21 Inc. mines about 3% of all bitcoins.
There was also a power outage in Canada. Montreal Power Outage Leaves Over 10,000 Hydro Québec Customers Without Electricity.
The majority of Bitcoin mining is powered by renewables such as hydro plants.
Mudslides in China could have also wiped out some Bitcoin miners back in August.
A local mining farm based in Sichuan, China was DEVASTATED by the recent heavy rainfall in the region, video attached 1/2 pic.twitter.com/CvdEAUeq3x— Poolin (@officialpoolin) August 21, 2019
2/2 clip of personnel digging out miners from the mud: pic.twitter.com/QebXEqBjrN— Poolin (@officialpoolin) August 21, 2019
The typhoon in Japan has also knocked out power in Chiba prefecture for two weeks.
What Has Cause The Bitcoin Price to Plummet to $8,000?
So, was it these power outages which caused the price to drop?
The Bitcoin price has lost $2,000 in the matter of three days. One suggestion is that the Bakkt institutional BTC futures exchange launch was luke warm.
However, I didn’t realise just quite how cold it was before researching it. There were only 74 Bitcoin futures traded on day one. That is tiny.
To put it in perspective, Bakkt’s Bitcoin futures launch volume was 75 times smaller than CME’s first day & BitMex’s volume was 375,000% higher!
It is still early days and Bakkt has a different product as it has a warehouse for custody of Bitcoins and it settles with physical delivery of Bitcoins rather than cash (which CME settles with), but it is a snail’s crawl of a start.
Even today, the volume is only 142 BTC. See below…
Physically settled Bitcoin futures may be fundamentally more useful than cash-settled contracts to key market participants. According to Genesis Capital CEO Michael Moro, the nature of the product gives market-makers a pure hedge in the eyes of the U.S. Securities and Exchange Commission (SEC), something the CME contract cannot deliver.
Macro conditions in the world economy are also not helping with Germany & the USA teetering on recession. The European Central Bank (ECB) just had to turn on the printing machines again and cut rates, whilst the Federal Reserve has also cut interest rates in the USA.
For traders, who usually just trade off technical, signals were looking bearish (see the descending triangle chart below), however Bitcoinist have an insightful article which points to BitMex, the largest futures exchange as the downfall of Bitcoin’s price recently due to a liquidity crunch.
Technical Indicator – Descending Triangle for BTC
BitMex’s Liquidity Crunch
According to reports by CryptoQuant, an on-chain data solutions provider, the BTC price fall can be largely attributed to over $700 million worth of contracts being liquidated during this decline.
See the chart below.
Bitcoin Outflows and BTC Price
Once liquidity dries up, bitcoin price quickly responds. On September 24, you can see that 49,141 BTC were withdrawn from the BitMEX wallet. Volatility followed within 5 hours, with the price of Bitcoin falling over 8%.
Due to the precision of the on-chain data, we can see the exact block in which the BitMEX outflows spiked.
BitMex Withdrawals & BTC Price
Taking a quick glance at CryptoQuant’s on-chain data regarding bitcoin inflows and outflows from BitMEX on November 14, 2018, April 19 and September 25, 2019.
It can be seen that there is a clear correlation between price volatility and outflows.
On each of these dates, the price volatility occurred within a short period following the BitMEX daily withdrawal at 13:00 UTC. See chart below.
So, whilst power outages may have caused some Bitcoin miners, notably in the USA, to come offline affecting the hash rate, it was the confluence of bearish technical signals and boredom at Wall Street of Bakkt’s launch that had a knock on effect of falling prices.
But, nothing changes the long run fundamental case of holding Bitcoin and with a halvening approaching in May 2020, the price will likely eventually bounce back.
Cryptocurrency & Blockchain Enthusiast | Licenced and Regulated Investment Manager
Cryptocurrency trading is highly speculative. The long term outcome is unknown. Any information contained in articles is for educational purposes only and is not investment advice. Please consult with a financial adviser before making any trading decisions.