Volatility in the hash rate at this pre-halving stage of Bitcoin shakes the entire mining sector

The hash rate at Bitcoin Mining (BTC) is seeing great volatility before the halving, scheduled for May 12, as the mining sector prepares for a major reorganization. On May 3, the hash rate set a new all-time high, or ATH, of more than 142 exahashes per second, surpassing its previous record set in March 2020.

However, the metric has not only gone up. Experts describe the hash rate during the first months of 2020 as “incredibly volatile,” ranging from about 70 EH/s to 120 EH/s. Most likely, the hash rate will start to fall once halving occurs, but it will soon start to recover – here’s why.

Volatility intensified in March

Why does the hash rate matter? It’s the simplest way to evaluate the health of the network. Simply put, the hash rate is the amount of computing power the miners are using to validate the Bitcoin Blockchain. The more power, the harder it is for bad actors to compromise the safety of the Blockchain. A higher hash rate also means more competition among the miners to validate new blocks, as it increases the difficulty of extracting new coins.

Last month proved to be the most volatile period for the

hash rate this year. Things were greatly stirred up by the so-called “Black Thursday”, the day when the price of Bitcoin bled almost 50%. The drop occurred on March 12, just four days after the hash rate reached an ATH of 123 EH/s, triggering a huge sale on trading platforms around the world. This, in turn, affected the performance of the hash rate. By March 25, the metric fell to just 76 EH/s, its lowest level since September 2019.

Catastrophic disruption or healthy rebalancing? How halving will affect miners
Possible reasons

Bitcoin’s volatile price is one of the key factors behind the “incredibly volatile” metric, confirmed Pankaj Balani, CEO of the crypto-derivatives platform Delta Exchange, in a conversation with Cointelegraph. Black Thursday caused a substantial number of miners to shut down their equipment, Balani said:

“A price drop of this magnitude is likely to have caused numerous miners to shut down their operations – at least temporarily – as Bitcoin mining suddenly became unprofitable. As BTC’s price dropped by 50%, miners saw their revenues decrease by a similar amount, and only the most efficient miners were able to absorb the cost. Whether or not these miners have been able to restart their operations remains a question.”

Other possible causes include the ubiquitous coronavirus pandemic. Balani explained that the increase in COVID-19 has forced many miners to close or reorganize their operations, contributing to a reduction in the BTC hash rate. “If the pandemic is not over by fall 2020, we should expect to see greater volatility in the hash rate and the price of Bitcoin,” he warned.

In addition, Delta Exchange’s CEO suggested that the disruption to the supply chain caused by the global shutdown prevented some miners from switching to more sophisticated equipment required to compete in post-hurricane conditions. Halving will cut the block reward in half – meaning that miners will start receiving 50% less BTC for verifying transactions, and will have to replace unprofitable units with more efficient equipment.