What's behind the drop in Bitcoin's hash rate, and could there be room for Bitcoin prices to rebound? The cryptocurrency's hash rate is designed to measure the number of times a given network can perform a calculation per second. While a high hash rate makes the competition among miners more intense, it increases the number of resources needed to withstand 51% attacks, making the blockchain network more secure.

In recent days, the hash rate of Bitcoin blockchain network has shown a significant decline, and even the decline trend may not be over, and will continue to continue. As shown by Blockchain, the Bitcoin network hash rate dropped from a peak of 136.2eh /s on March 1st to 75.5EH/s on March 26th.

Coin Dance reported similar findings: bitcoin's hash rate has dropped 29% to 105.6EH/s in just 10 days, from a peak of around 150EH/s on March 5. The drop in hash rates has led to an exodus of miners and a number of knock-on effects, so many people have linked the drop in hash rates to the collapse in bitcoin price.

In fact, we all know that the market's decline must not be influenced by a single factor, but should be the result of a combination of many reasons, such as the impending halving, the sudden pandemic, all contributed to the turmoil in the crypto market. However, the departure of miners does have a direct relationship with the change in hash rate and mining difficulty.

The reasons of bitcoin hash rates drop

Historically, hash rates and mining difficulty have been trend setters in the "miner surrender cycle." With the currency high, mining is profitable; As mining becomes harder and equipment runs out of power, miners sell assets so they can keep digging; When miners lose their competitiveness, they drop out of the market, and so the hash rate goes down. However, there are different opinions in the industry as to what exactly is causing the hash rate to drop.

Some argue that the exodus of miners is causing the hash rate to fall. For example, Walter Salama, chief compliance officer of mining company Bitpatagonia, is a proponent of this view. He believes many of the smaller mining companies that are being forced to shut down are making the same mistake, selling and trading at very high equipment costs and with the mentality that Bitcoin will never stop falling when the price is attractive, leaving them with no inventory and forced to sell to survive.

PierceCrosby, managing director of TradingView, explains that much of the volatility in the hash rate is based on programmatic price limits set for different mining equipment. Because of the mathematics of hashing rate incentives, lower prices mean lower profits, so these miners may slow down until prices rebound and profit margins increase. As the difficulty drops, the miners' surrender cycle ends the whole process, which can continue until only the strongest remain, highlighting a fundamental flaw in the Bitcoin network.

Different analysis points of bitcoin hash rates drop

Of course, there are many experts who disagree, arguing that the decline in Bitcoin's hash rate has little to do with miners' surrender. Donnell Wright, a compliance consultant in the industry, said he does not see what is happening as a capitulation by miners, especially with Bitcoin nearly halved. He doesn't think it's happening now because, based on previous data, a halving of the price usually leads to a sharp rise in the price, and capitulating now would be very unwise and disadvantageous.

Wright also believes that the decline in Bitcoin network hash rates may be due to miners competing with newer technology, so they are now having to temporarily shut down equipment to upgrade. In addition, according to different regions, novel coronavirus may also be one of the reasons for suspension of mining operations. All in all, Wright does not expect miners to leave the field before the halving, and therefore does not expect the hash rate to drop as a result.

Vector Moranov, a member of the Miners Bitcoin Foundation, agrees that miners have caused the hash rate to drop in the short term, but he believes the underlying cause is the coronavirus. Sidharth Sogani, founder and CEO of Crebaco, echoed this view, even saying that it was the shutdown of Chinese miners and equipmen that caused the hash rate to fall because more than 30 percent of the mining activity takes place in China, where the virus has left the country's mining facilities operating at less than optimal capacity.

But while some see the hash rate decline as a sign of underlying network weakness, it could actually be a sign that bitcoin is poised for a significant rebound in the near term. A drop of hash rate should ease selling pressure on miners, leaving plenty of room for the benchmark cryptocurrency to rally.