Bitcoin network hash rate has plunged drastically to record its lowest level since the turn of the year. The hash rate fell to 75 EH/s on March 26, from its yearly peak of 136 EH/s recorded on March 5. This equates to a 45% decline in just three weeks indicating that a significant proportion of miners are leaving the network.

Hash rate drop bad timing or miner capitulation?

Bitcoin hash rate has been growing steadily over the years, peaking on March 5 as more miners joined the network adding to its computing power. The sustained growth was a probable indicator that Bitcoin mining was still profitable even with the rising difficulty levels.

This trend changed abruptly following Bitcoin’s flash crash on March 12 in which the digital asset lost over 50% of its value. According to Bitcoin blockchain data, the hash rate has fallen steadily since then implying a substantial proportion of miners were powering down their machines.

Bitcoin hash rate April 19-March 20 (Source: blockchain.com)

Subsequently, the Bitcoin network lowered the mining difficulty by 15% on March 26 from 16.55T to 13.91T.

Bitcoin difficulty (Source: Coinwarz.com)

This downward difficulty adjustment was supposed to act as an incentive for miners to resume operations causing an uptick in the network’s hash rate. However, the opposite happened as more miners stopped their operations altogether as they remain unprofitable.

The situation is not expected to improve soon as blockchain data suggests that difficulty will be adjusted downwards again by 16% in the next 14 days.

These occurrences have rekindled talk of the death spiral and miner capitulation.

The miner capitulation theory posits that both Bitcoin hash rate and difficulty rise steadily up to a point where it is no longer profitable to mine. As a result, miners are forced to liquidate their holdings to cover operating costs. This creates an oversupply that crashes Bitcoin’s price. According to the theory, the capitulation point results from decline in hash rate and subsequent reduction of difficulty.

This sounds, eerily similar to today’s event. However, the Bitcoin community has rubbished these claims stating that today’s events are just a case of bad timing.

Crypto community defends recent occurrence

The crypto community has strongly dismissed any notion of a death spiral arguing that today’s events were just a mere coincidence.

The well renowned Twitter-based crypto analyst, Plan B criticised the idea of miner capitulation noting that both Bitcoin hash rate and difficulty are still higher today than they were same time last year. The analyst also observed that the current difficulty trend resembles its behaviour in the 2012 and 2016 pre-halving period.

Coinbase’s Max Brrrronstein weighed in tweeting that this was the third largest bitcoin difficulty reduction with the largest (18%) occurring on Oct. 30 2011. The virtual currency was trading at $3.12 having lost about 70% of its value in the preceding three months. Bitcoin price surged steadily since then to become the best performing asset of the decade.

Brrrronstein observed that Bitcoin recorded its bottom in three out of four other occasions when the asset had a massive hash rate drop and downward difficulty adjustment.

Bitcoin miners and investors alike will hope that Bitcoin avoids the death spiral and instead surges higher, similar to these previous occurrences.

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