Miners are #HODLing Bitcoin
— March 29th 2020 by TokenInsight Research
Author: Johnson Xu
Contact: johnson@tokeninsight.com
Overview
The sharp market downturn during the mid-March 2020 has forced some bitcoin miners to switch off the mining rigs and as a result, the bitcoin network hash rate plummeted to ~75.8 EH/s at its recent lowest point from its all-time high of ~136 EH/s, the network hash rate is currently hovering at ~100EH/s. Consequently, we have seen a fall of almost 16% in mining difficulty, posting as the second-largest % drop in history.
As the price plummeted to a lower level, the network sees a surge on the mean block interval from roughly 10 minutes per block to 15 minutes per block before the scheduled network adjustment kicks in.
The daily MRI (Bytetree, 2020) indicates miners are now #HODLing bitcoin in the short term
The MRI provides valuable insights on how miners perceive the market. Prior to the market downturn (11th March 2020), the MRI reflected a strong market bid that the miners are conformable to sell into indicated by a >1 MRI. When the market stabilises after bitcoin crashed to sub $4k at its lowest, the daily MRI dropped significantly to < 1, indicating a vastly different view from the miners on the market condition, meaning they are holding back the bitcoin and their inventory rises (Bytetree, 2020). At the time of writing this analysis piece, the daily MRI is running around 1 (or 100%).
Miners are still comfortable selling into the market in the longer run as demonstrated by 1 week, 5 weeks and 12 weeks MRI ratios.
Fee crossovers (Bytetree, 2020) indicate growing network demand
The recent market downturn has caused some miners to switch off their mining rigs as indicated by the recent ~16% downward adjustment on the network difficulty.
However, 1-week fees are slowing creeping up to the 52 weeks fees level, despite the recent market downturn. Rising fees reflect increasing network activity, which could be interpreted as a positive indicator for the bitcoin market.
Spend Output Profit Ratio (SOPR) indicates a significant number of people selling at a loss
The SOPR ratio developed by Renato Shirakashi is one of the many insightful indicators that help analysts to gauge the market participants’ sentiment and behaviour. The ratio dropped significantly to <1 during the recent market downturn and backed up to near 1 when the market stabilises. However, the ratio faces some difficulty to break >1 mark strongly, indicating the market participants are waiting for the breakeven point to sell.
51% Attack?
The theoretical 24-hour attack costs have dropped significantly recently, currently sitting at ~$14 million. It does sound alarming when we see a large drop of 24-hour attack costs, however, it is practically impossible to perform a 51% attack on the bitcoin network, as the 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 fall shorts of the required 51% hash rate by more than 99% (~0.3%/51%) to perform a 51% attack if the attacker were to acquire hash power solely from NiceHash.
- 1. Attack costs depend on the market price of rentable hash power from the NiceHash’s marketplace. The prices are subject to change based on the cryptocurrency market condition and the demand/supply of the hash power available from the market.
- 2. Nobody currently has the ability to coordinate such an attack and make 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 would be willing to do so. It is extremely difficult, on the traditional market, to provide liquidity or make a market for 51% worth of value on any particular asset.
Unless we discover a direct channel, which could let an attacker 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 realise.
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