In just three days, the Bitcoin network hash rate plummeted nearly 13 million TH/s. According to data from blockchain.com, the network hash rate fell from an all-time high of 43,161,085 TH/s on June 24th to 30,540,865 TH/s by June 27th. Most major mining pools have taken a hit as a result. Just last week we reported that Bitmain was close to reaching 51% of the total network hash rate, but since then its control has fallen to 39.9% from a high of 43.9%.
Is the Weather to Blame?
Heavy rains and floods swept across parts of China, with large amounts of rain falling in the Sichuan region specifically. Sichuan is an ideal location for Bitcoin mining farms due to the low cost of electricity, largely thanks to huge hydroelectric dams. However – in the Sichuan region – most of the buildings used as Bitcoin mining farms are rather outdated or offer little to no protection from flooding.
It is estimated that around 70% of the Bitcoin network hash rate comes from China, and 70% of China’s Bitcoin network hash rate comes from the Sichuan region. While some Bitcoin mining farms would have been more protected than others – especially modern setups – there are still vast amounts of farms still using dilapidated buildings, which would easily succumb to rising flood waters.
How Will This Affect Bitcoin?
While volatility is common in the Bitcoin network hash rate, this is the largest decrease in network power ever recorded. While the Bitcoin network hash rate is slowly starting to recover, it could be some time before we see it climb back to fresh all-time highs, as entire farms were wiped out during the storms.
Prominent reporter and Wall Street Trader Max Keiser believes that hash rate is a direct indicator of Bitcoin price. This would imply that the price of Bitcoin would drop significantly following the decline in network hash rate. However, the price of Bitcoin has been on a downward bear trend for the past few months and following the decline in hash rate, the price of Bitcoin rallied significantly.
Time for the Little Guy to Step In
This huge reduction in network hash rate – combined with the climbing Bitcoin price – means now is a brilliant time for smaller miners entering the market. While it also presents an opportunity for miners who had paused their mining operations due to low cost of Bitcoin to resume mining. With large Bitcoin mining farms decimated and offline for an indefinite period, smaller miners are starting to pick up the slack and earn more Bitcoin for their mining efforts than before.
This event could also see people purchasing their own mining equipment rather than renting space from large firms – especially in China. While renting mining power from farms has been quite popular, if these farms continue to have their service degraded by weather conditions, we could start to see a shift away from renting power in pool to more independent miners. Bitmain already provides a relatively low-cost mining rig that comes packed full of power.