According to global crypto market cap charts released by CoinGeko, the crypto market has become bearish since April 2022. Bitcoin prices have declined by more than 75% from the record high, almost hitting the bottom. The economic benefits generated by crypto mining are facing unprecedented challenges. Bankruptcy and reorganization of some listed mining companies have become common news, and Bitcoin miners are also suffering. The bear market is not scary, since this isn’t the first time crypto mining has faced a crisis. In retrospect, we can find that the ongoing bear market has some different features.
Feature 1: Different triggers
Previous crypto bear markets were often triggered by a lack of trust in the blockchain and concern about its security. As a result, the prices of most cryptocurrencies would plummet in the wake of news about hacks. As the blockchain has gained higher recognition from international institutions and some countries have even adopted Bitcoin as fiat currencies, such doubts have faded off.
What lies behind the 2022 bear market differs greatly from before. Global inflation hit a record high and the Federal Reserve tightened its monetary policies this year, putting tremendous pressure on the crypto market. The price plunge of LUNA has sparked a liquidity panic among many institutions in the crypto world. Major institutions such as Three Arrows Capital have fallen into bankruptcy liquidation. FTX, once one of the world’s top five exchanges, was found to have a black hole in its financing report and regulatory issues. All these factors have accelerated the crash in the crypto market.
In its July analysis report, Glassnode, a famous on-chain data analysis platform, noted that 2022 would witness the most disruptive bear market in the crypto history.
Feature 2: Different miners
Most crypto miners used to be individuals. After more than 10 years of development, a huge and complete upstream and downstream industry chain has taken form. Currently, the crypto mining market is being nibbled by large mine owners and institutional investors.
Unfortunately, these publicly traded mining companies with large amounts of capital have also faced a bankruptcy crisis this year. Compute North filed for bankruptcy in September, and Core Scientific recently filed for Chapter 11 bankruptcy protection. Another major miner Argo Blockchain was also on the verge of bankruptcy.
These mining companies expanded aggressively throughout the last bull market. They also increased leverage through loans to buy mining machines and build mines, leading to the bankruptcy crisis they are faced with today. As some mining companies collapse, the hashrate of the Bitcoin network did not decrease significantly, which implies that the bankruptcy of mining companies has a limited impact on Bitcoin and Bitcoin has become more resistant to risks.
Feature 3: Different upward trends of hashrate
In fact, the hashrate of the Bitcoin network rarely hits record highs during a bear market. It is widely believed in the crypto world that hashrate will affect the Bitcoin price. But it turns out the other way. There is no obvious correlation between the harhrate and the Bitcoin price.
Comparing the average hashrate of Bitcoin in the 2022 bear market with the figure in the 2018 bear market, you can find that the hashrate reversed its trend and started to decline as the Bitcoin price hit a low. But in the current bear market, the hashrate slowly goes up amid fluctuations.
Source: BTC.com
Feature 4: Different hashprices
Hashprice is a measure of market value assigned per unit of hashing power. As an important index that miners follow on a daily basis, this indicator can reflect the current profitability of mining. In bear markets, this indicator generally plummets. The hashprice drawdowns in 2018 and 2022 show a high level of similarity, as the drawdown in 2022 are less steep.
However, it is still a very difficult time for new miners, especially those entering the market in late 2021. If you bought a mainstream mining machine at the height of the 2021 bull run, it would take five years to recover cost at today’s revenue level of $0.06 per terahash.
Most of the miners and institutional investors that were drawn to the last bull market may end in failure. They can only make sense of everything after the bubble bursts. The next crypto bull market will take longer to shine again. Therefore, real mining believers may reduce their leverage and stick to their mining business in preparation for the next stage.