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Bitcoin [BTC]’s mining death spiral explained by BlockTower’s CIO, Ari Paul




Source: Unsplash

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.”


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.

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Akash is your usual Mechie with an unusual interest in cryptos and day trading, ergo, a full-time writer at AMBCrypto and a part-time novice trader.


Bitcoin will likely be valued at $100,000 with a market cap of over $2 trillion before the end of 2021





Bitcoin [BTC] will likely reach $100,000 with a market cap of over $2 trillion before the end of 2021
Source: Unsplash

The entire cryptocurrency market seems to be on the brighter side of the market since the beginning of the year. A majority of the coins have recorded significant recoveries from their 2018 slump, a period during which most coins lost over 90 percent of their value, when compared to their all-time highs. Among all the coins in the market, Bitcoin [BTC] aka the digital gold, was noted to be making a massive comeback as the coin breached the $11,000 mark after nearly 15 months. The coin however, soon retracted to settle below the $11,000 level.

According to CoinMarketCap, at press time, Bitcoin was trading at $10,887.27 with a market cap of $93.549 billion. The coin recorded a 24-hour trading volume of $20.757 billion for the past 24 hours and saw a massive rise of over 17 percent over the past seven days.

Anthony Pompliano, Co-founder of Morgan Creek Digital Assets, predicted that the largest digital currency could rise to reach $100,000, before the end of 2021. Pomp added that he was around 70-75 percent confident in this prediction. He stated,

“As I have previously said, making predictions is difficult […] Part of my process as a professional money manager is forming a thesis (price target), identifying a timeline (date), and establishing a confidence level. And then constantly re-evaluating those three aspects of my thought process as I receive new information.”

Pomp however, listed six pointers that have to be understood beforehand. First, this prediction is not an investment advice, and people should do their own research before investing in the digital currency. The second is with respect to Bitcoin’s volatility, with Pomp remarking that since it was a highly volatile market, the coin could witness a significant fall before being valued at $100,000. He stated,

“I anticipate that there will be numerous 20-30% drawdowns from new all-time highs as the asset continues to appreciate in value. These mini-boom/bust cycles should not cause panic, but rather need to be understood as natural market dynamics whenever an asset gains significant value in short periods of time.”

Further, the partner of the investment firm stated that the rise would be driven by several catalysts. This includes institutional adoption, exchange-traded funds and retail product approvals, global instability, governments all across the globe manipulating currencies, markets and economy. He went on to state,

“The market cap of Bitcoin will reach $2+ trillion when Bitcoin is worth $100,000. This is less than 1/3 the market cap of gold and less than 1/40 the global money supply.”

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