Bitcoin Mining

Bitcoin Hashrate Reaches A New All-Time High: Here Are The Key Reasons

Analyzing causes of the recent hashrate increase

Bitcoin’s total hashrate is a critical indicator of both the network’s health and security, but it’s also telling of miners’ sentiment.

Bitcoin’s hashrate measures the total computing power dedicated to Bitcoin mining, and it reflects the number of hash guesses that all Bitcoin miners combined can perform per second. Therefore, growing hashrate implies that more miners are connecting to the network — or expanding their mining capacity — as they expect to earn more from Bitcoin mining. In that regard, hashrate all-time highs are always positive news.

Now, Bitcoin hashrate has reached a new maximum of 300 EH/s. In this article, we will explore the main factors behind this milestone and what it means for the future of Bitcoin.

Bitcoin Mining Is a Profit-Seeking Activity

Before we begin, it’s important to note that profitability is the major driver for most Bitcoin miners, whether institutional or domestic.

In other words, hashrate fluctuations are often a consequence of changes in mining profitability. Yet, this last factor is multi-faceted and complex, and can respond to a wide variety of reasons.

In this particular case, several factors came into play that have positively affected mining profitability, leading to this new all-time high.

Bitcoin’s Price: 47% Up Since the Start of the Year

Bitcoin’s price has been on the rise in 2023 — a refreshing change of trend after one of its worst crashes in history in 2022.

Remember, Bitcoin crashed 68% to $15.7K in less than a year and over 77% from its all-time high in 2021. This drop caught most miners off guard, forcing them to liquidate their assets to pay their utility bills and debt obligations or — in the most extreme cases — even declare bankruptcy.

However, 2023 started off with the right foot. The recent increase in the price of Bitcoin has contributed significantly to the rise in mining profitability, which reached $0.08 per TH/s — its highest point since October last year.

The higher the price of Bitcoin, the more profitable mining becomes, and more miners are encouraged to join the network.

More importantly, Bitcoin mining has become an increasingly competitive industry as the price of Bitcoin continues to rise. This means that miners need to invest more in their computing power to stay ahead of the competition, further boosting the network’s total hashrate.

Natural Gas’ Price Drop Brings Costs Down

Good news is coming to miners from the macroeconomic scenario as well.

Natural gas is a very popular source of electricity used by Bitcoin miners and the world in general, but after the conflict between Ukraine and Russia — one of the largest natural gas producers in the world — its price had seen a massive increase.

However, the situation has gradually normalized, and even if the conflict isn’t over, natural gas prices have fallen by nearly 75% since August 2022.

As the price of natural gas has decreased, so has the cost of electricity, reducing costs and making it more profitable for miners to continue mining.

The lower electricity costs have also made it more accessible for new miners to enter the market, as well as enabling already experienced mining corporations to renew and even strike new partnerships with energy producers, allowing them to scale their operations and contributing to the overall growth of the Bitcoin network.

End of the Winter, Start of the Mining Bull Market?

The third factor contributing to the rise in hashrate is the rising temperatures in the northern hemisphere.

During the winter months, electricity demand for heating increases, which can lead not only to higher electricity prices, but also power shortages. Such was the case of Texas, one of the greatest mining hubs in the world.

In the Lone-Star State, many miners purposefully shut down their operations to support the local power grid, returning enough electricity to heat 1.5 million homes.

As we leave the winter behind and temperatures start to rise, the demand for heating decreases, allowing miners to resume their mining operations, but also resulting in lower electricity prices, making it more profitable.

Ordinals Boost Mining Revenue From Fees

The final factor contributing to the rise in mining profitability and hashrate is a rather unexpected one: the recent surge in non-fungible token (NFT) minting and trading on the Bitcoin blockchain — also called Ordinals.

What are Ordinals exactly? Each Bitcoin can be divided into 100,000,000 satoshis — sats for short. A sat is the minimum unit of a Bitcoin Now, the new Ordinals protocol allows people who operate Bitcoin nodes to inscribe each sat with data. That data can include smart contracts, which in turn enables NFTs.

In layman’s terms, Ordinals are NFTs users can mint directly onto the Bitcoin blockchain. And they have been an unstoppable sensation since they launched.

This surge in Ordinals minting and activity has resulted in an increase in transaction fees, which has in turn led to an increase in fee revenue for miners.

The more activity there is on the Bitcoin network, the higher the fees users have to pay to get their transactions confirmed. The miner who finds the block gets to keep these higher fees.

In other words, higher fees led to an increase in mining revenue, which has made it more profitable for miners to dedicate their computing power to Bitcoin. This, as we’ve seen, encourages more miners to join the network.

New Hashrate All-Time High: Final Thoughts

The recent all-time high in the Bitcoin hashrate is the result of multiple factors that have made Bitcoin mining more profitable for miners.

The increase in the price of Bitcoin, the decrease in the cost of electricity due to the falling price of natural gas and rising temperatures, and the surge in NFT trading have all contributed to the growth of the Bitcoin network.

Overall, the new hashrate all-time high is positive news for Bitcoin, not only because it indicates growing health and security for the protocol, but also a positive sentiment from miners regarding revenue and profitability.

While it’s impossible to predict the future, this new hashrate maximum, as well as Bitcoin’s green start of the year are enough reason to be optimistic, at least in the short term.