Johnson Xu is the Chief Analyst at TokenInsight, a token data and rating agency.
The sharp market downturn in mid-March 2020 forced some Bitcoin (BTC) miners to switch off their mining rigs. As a result, the Bitcoin network hash rate plummeted to ~75.8 EH/s. After reaching its lowest recent point, down from its all-time high of ~136 EH/s, the network hash rate is currently hovering at ~100 EH/s.
Consequently, we have seen a fall of almost 16% in mining difficulty, resulting in the second-largest drop in history.
As the price plummeted yet lower, the network has seen a surge on its mean block interval from roughly 10 minutes per block to 15 minutes per block before the scheduled network adjustment kicks in.
Miners are now #HODLing bitcoin in the short term
The MRI (miner’s rolling inventory) provides valuable insights into how miners perceive the market.
Prior to the market downturn (March 11, 2020), the MRI reflected the fact miners appeared conformable to sell, indicated by a >1 MRI. When the market stabilized, after bitcoin crashed to sub-USD 4,000 at its lowest ebb, the daily MRI dropped significantly to < 1.
That indicates a very different view from miners on the condition of the market, and means they are holding back on bitcoin and their inventories are growing (Bytetree, 2020). At the time of writing, the daily MRI is running at around 1 (or 100%).
Miners are still comfortable selling into the market in the longer run, as demonstrated by the 1 week, 5 weeks and 12 weeks MRI ratios.
Growing network demand
The recent market downturn has caused some miners to switch off their rigs, as indicated by the recent ~16% downward adjustment on network mining difficulty.
However, 1-week fees are slowly creeping up to 52-week fee levels, despite the recent market downturn. Rising fees reflect increasing network activity, which could well be a positive indicator for the bitcoin market.
Selling at a loss
The SOPR (Spend Output Profit Ratio) ratio, developed by Renato Shirakashi, is one of the many insightful indicators that help analysts gauge market participants’ sentiment and behavior.
This ratio dropped significantly to <1 during the recent market downturn, and backed up to near 1 when the market stabilized.
However, the ratio’s upward turn faces some difficulty in its quest to break the >1 mark strongly. This could be an indicator that market participants are waiting to hit the breakeven point before they sell.
Theoretical 24-hour attack costs have dropped significantly recently, and currently sit at USD 14 million. This does sound alarming, especially when we can see a large drop in 24-hour attack costs.
However, it is practically impossible to perform a 51% attack on the Bitcoin network, as an attacker cannot solicit enough hash power to perform such an attack, due to the following reasons:
- A maximum of ~0.3% hash rate can be rented from NiceHash, which falls short of the required 51% hash rate by more than 99% (~0.3%/51%) if the attacker were to acquire hash power solely from NiceHash.
- Attack costs depend on the market price of rentable hash power from NiceHash’s marketplace. The prices are subject to change based on cryptocurrency market conditions and the demand/supply of hash power available from the market.
- Nobody currently has the ability to coordinate such an attack and create a market for such a huge amount of hash power. As the cost of searching for such a large amount of hash power is prohibitively high, nobody (presumably) would be willing to pay up. It is extremely difficult, on the traditional market, to provide liquidity or create a market for 51% worth of the value on any particular asset.
All of the above is true unless we discover a direct channel, which could let an attacker to control 51% hash rate effectively. The risk of a 51% attack on the Bitcoin network is extremely low and such an operation is extremely difficult to realize.