Ari Paul, the managing partner, and Chief Investment Officer the BlockTower capital spoke recently on TD Ameritrade’s Morning Trade Live on Monday and discussed Bitcoin’s declining hash rate over the past few months. He also addressed the ‘mining death spiral’ that Bitcoin is facing.

Touching the shutdown of Bitmain’s Israel’s mining branch, Ari Paul said that it was a matter of intense debate as the security of Bitcoin’s network lies in the hash power and in turn, lies with miners. He added, “the more hash power, the more expensive it is to mine, the more secure the network is” so the danger arrived when the mining cost declined.

Paul continued:

” it’s tricky because it’s a spectrum, ’cause there’s some miners who have near zero marginal electricity costs and there are others for money a $4,000 marginal cost”

He argued that $6,000 to $6,500 was not the mining cost, and said that it could be an all-in cost, which includes the equipment cost, replacement of ASICs, but not the marginal cost.

Referring to the mining fee revenue chart, and how it has vastly reduced to a point where it is not profitable for miners, Ari Paul said:

“The term that people sometimes use is “hash power death spiral” and the idea’s that if the price of bitcoin falls below marginal cost of mining, miners just stop mining, and the Bitcoin network ceases to function, basically. But the Bitcoin network automatically adjust for this every it’s usually around two weeks, it’s it’s algorithmic.”

Source: Blockchain.com

Paul added that the way the Bitcoin network worked was that the difficulty of finding the next block adjusts automatically and that this was “baked in the code” every 2016 blocks.

The concern that Ari Paul raised was that if Bitcoin’s price fell down to zero in a dramatic decline, it would require an entity like Coinbase or BlockTower to mine Bitcoin for a period of two weeks or to mine those 2016 blocks which would act like a “bridge loan”.

Furthermore, the mining done in the period of those two weeks would adjust the mining difficulty level which would offset the drop in the hash rate, leading the mining from that point on to be profitable.

Moreover, Paul added that for the brief period of two weeks that the miners are mining uneconomically is not actually right as it was semantics and that they just have to be profitable at the end of two weeks, which usually came from inflationary block reward.