Bitcoin Network Cools Off as Chinese Miners Miss The Rain

Key on-chain metrics for the Bitcoin network such as hashrates have been in decline in recent weeks as seasonal changes in China impact mining operations.

The Bitcoin network’s hashrate, which is a measure of computing horsepower, has slumped over the past couple of weeks. From an all-time high of 157 exahashes per second in mid-October, it has fallen by 35% to 101 EH/s as of November 3^rd according to bitinfocharts.com.

Zooming out on the chart, however, shows that something similar happened at the same time last year with hashrates falling from their then all-time high of 110 EH/s in October, by 33% to a low of 74 EH/s by the end of November. These seasonal patterns were reported by Nasdaq in a recent analysis of the situation.

Rainy Season Ends For Bitcoin Miners

These seasonal changes are predictable, and largely due to the end of the rainy season in China, where the majority of Bitcoin mining takes place.

Cheap hydroelectric power in provinces like Sichuan makes mining more profitable, especially during the wet season. When the rains dry up, the cost of power increases which means that miners are forced to power down their rigs, especially the more inefficient older model machines, or relocate them. This causes the dip in hashrate as there are fewer machines competing for the next block reward.

As a result of the slump in number-crunching power, block times and transaction costs have increased recently.

Huge Difficulty Adjustment

In order to account for these discrepancies, the Bitcoin network has been designed to automatically adjust the difficulty, which is a measure of how difficult it is to find a hash below a given target.

According to Glassnode, the network saw its biggest negative difficulty adjustment in almost 10 years as it readjusted by 16% on Tuesday, November 3.

These difficulty adjustments are automated and occur every 2016 blocks, to maintain the asset’s characteristic as ‘hard money’ regardless of any external factors such as precipitation and electricity prices impacting miners.

For end users, this difficulty adjustment will reduce transaction fees and waiting times as Bitcoin’s mempool size, or transaction waiting room is also reduced.

There has been very little impact on BTC prices as it topped $14k for the second time this year a few hours ago during Asian trading. At the time of writing, Bitcoin was trading at $13,800 as the world awaits the results of the election that could change the direction of global finance for the next four years.