- The main regions of China for Bitcoin mining suffered a power grid outage, causing Bitcoin’s hash rate to drop.
- The price of Bitcoin collapsed over the weekend, coinciding with the drop in the hash rate of the network.
- However, many analysts believe that Bitcoin’s hash rate only fell 20% and was not the main reason for the cryptocurrency’s decline.
The recent blackout in China’s Xinjiang region caused the hash rate of several Chinese Bitcoin mining operations to drop. Although several traders have suggested that the Bitcoin price crash correlated with the drop in the hash rate, some analysts did not reach the same consensus.
Power Grid Outages In China Drove Bitcoin Hash Rate Down
China’s Xinjiang Province has faced a major power outage due to a coal mine explosion. According to prominent crypto analysts, Bitcoin’s hash rate dropped 30% instantly, while the provinces of Xinjiang and Sichuan together have more than 50% of Bitcoin’s overall hashrate, according to Dovey Wan, the founding partner of Primitive. Crypto.
Thomas Heller, co-founder of Compass Mining, explained that mining farms in Xinjiang were closed on April 16 due to the coal mine accident earlier in the week.
According to Nic Carter, co-founder of Coin Metrics, based on the coming week’s upturn, an estimate could be made from Xinjaing in the Bitcoin network. He added that the decline in the Xinjiang grid and its effects on Bitcoin’s hash rate is what economists call a “natural experiment” ?? which could be a useful source of data.
Correlation of bitcoin price and hash rate
Prominent analyst Willy Woo suggests that the price of Bitcoin and the hash rate have always been correlated. Woo also looked at the latest hash rate data on a 6-hour moving average and suggested that it was almost fully fetched. The analyst suggested that this could be a huge buying opportunity for those looking to enter the market.
Average Bitcoin Hash Rate 6h MA
Bitcoin’s network averages around 144 blocks mined per day, and the network difficulty adjustment occurs every 2016 blocks. Due to the drop in hash rate, blocks would be created more slowly and it would take longer to reach 2016 blocks before the difficulty adjustment occurred.
Bitcoin corrections are not monocausal
The price of Bitcoin suffered a massive drop over the weekend, wiping out most of its gains when it hit an all-time high. Woo also suggested that the sale of Bitcoin was also due to the anticipation of the disconnection of miners in China, which triggered the liquidation of positions of short-term speculators. 9,000 Bitcoin were sent to Binance, which Woo pointed out as a sale from those more familiar with events in China.
Binance Bitcoin Net Transfer Volume
The chain’s analyst further noted that Binance serves more volume in Asia than in the West. Quarterly futures in derivative markets also contributed to the Bitcoin price crash.
Despite the sharp drop in Bitcoin prices, Woo indicated that long-term fundamentals are strong.
Larry Cermak, research director at The Block, dismisses the argument that the drop in hash rate was the reason for the recent BTC price crash. However, he acknowledged that the hash rate could have fallen by around 20% due to the power outages in China. He said:
The hilarious thing is that the hashrate is actually exactly on the same level as when people said it was down 40%. There was no change, just a statistical inaccuracy related to the calculation. Still down about 20% from the top.
Cermak explained that corrections are natural after massive rallies, especially when weekends are typically faced with low liquidity in the market. Bitcoin’s price rally was fueled by positive sentiment around Coinbase’s direct listing last week. Cermak added:
The best advice in this market is to stop looking for reasons and always be prepared for the big 20% drops that have always happened.
It was also due to market exhaustion which led to the latest Bitcoin price drop. He concluded that the markets had been skyrocketing for weeks, traders were over-leveraged and “a lot of negative stories are converging.”
Adam Back, CEO of Blockstream, said many people misread and relied on charts that “mistakenly extrapolate too short sampling times from a high variance block interval.” He added that some charts underreport the hash rate due to low sample rate bias.