The bitcoin price experienced a considerable selloff on September 24th, sinking around 15 percent intraday from $9,700 to $8,250 at one point as the vast majority of the top 100 cryptocurrencies acutely slipped deeply into the red in the same span.
With no direct relation to the bitcoin price’s Tuesday performance, September 24th also saw community discussion pick up around the recent perceived decline in the projected Bitcoin hash rate — the “estimated number of tera hashes per second … the Bitcoin network is performing,” according to the definition provided by Blockchain.com, which publishes a popular tracker for the metric.
At face value, neither of these events are things Bitcoin hasn’t generally undergone before, as the OG cryptocurrency project has seen its fair share of selloffs and quick estimated hash rate swings. Yet the acute starkness of the latest episodes begs the question: what gives?
First, Let’s Talk Hash Rate – Has It Really Dropped?
Between September 20th and September 22nd, the estimated Bitcoin hash rate declined from more than 98 quintillion hashes per second (TH/s) to a little over 67 quintillion hashes per second for a drop of 31 percent per Blockchain.com.
Yet the suggested movement might not mean exactly what many have taken it to mean, namely the speculation that a single massive mining operation or a region of mining operations abruptly went offline.
According to Dan McArdle, the co-founder and chief technical officer of the Messari cryptocurrency data dashboard, estimated hash rates are exactly that — estimates — and as such precise hash rates should be considered “unknowable.” McArdle also said these imperfect estimates are “extremely noisy on short timeframes” and that large swings in them are not unusual.
In other words? This hash rate drop may not be the collapse that some in the space have made it out to be.
Hash rates are unknowable!
1) There is no chart of hashrate. They are all charts of *estimated* hash rate based on observed block times
2) They are extremely noisy on short timeframes
3) We see big moves like this in the *estimate* frequently https://t.co/UEfuoW9D8j
— Dan McArdle (@robustus) September 24, 2019
But with the lack of certainty and the reality of variance around the Bitcoin hash rate, confusion abounded for novices as the latest perceived drop even looked superficially steep according to some experts.
“It’s definitely on the larger side and I’d agree that it warrants an extra eye,” Christopher Bendiksen, the Head of Research at digital asset management firm CoinShares, noted on Twitter.
It's definitely on the larger side and I'd agree that it warrants an extra eye. You could calculate how often variance on this magnitude could be expected though. Would be an interesting exercise (that I won't do lol).
— Christopher Bendiksen (@C_Bendiksen) September 24, 2019
Ultimately then, it’s not entirely clear for now whether the drop was entirely the result of imprecise estimations or such estimations combined with some hash power exiting the network.
The "hashrate crash" isn't real. Long block intervals are vastly overrepresented in fixed-period sampling
This is because the interval is long. A 18-minute block has approximately the same likelihood as a 2-minute block, but affects time-based sampling 9x more (!!!)
— James Prestwich (@_prestwich) September 24, 2019
Notably, the downward move comes just days after the Bitcoin network achieved the milestone of its highest hash rate ever — 102 TH/s — on September 17th. The rate has generally been uptrending since December 2018. For perspective, the current estimated Bitcoin hash rate of 67 TH/s matches levels last seen just a few weeks ago in mid-August.
The BTC Price Takes a Quick Hit
Some pundits argue that the bitcoin price loosely follows the network hash rate. Reasonable people can disagree on the meaning or meaningfulness of correlation there, but in the least the latest bitcoin price drop happened fast for whatever reason.
After having been over $10,000 USD on September 22nd, the BTC price steadily slid to around $9,400 as of 1:40 p.m. ET on Tuesday. In the ensuing hour, the price tanked another $1,000 to below $8,400.
The cryptocurrency has recovered slightly since then, trading around $8,700 at the time of this article’s writing. That puts bitcoin down five percent on the week and four percent on the month, though it remains up 45 percent from this point last year.
Moreover, as happens any time the bitcoin price moves sharply downward, many traders’ “long” BTC bets on cryptocurrency derivatives exchanges like BitMEX were liquidated. During the movement, BitMEX itself saw nearly $400 million in XBT Perpetual Swap contract liquidations. Chalk it up to the price paid for placing leveraged bets on a fledgling asset that can be as unpredictable as BTC.