Analyst Willy Woo explained that a massive power outage in China caused a 40% drop in the Bitcoin hash rate and subsequent price decline.
Over the weekend, Bitcoin (BTC) fell back to $ 50,000 after hovering above $ 60,000 for several days. With a fall of 12% in a few hours, Bitcoin went from USD 61,450 to a bottom of USD 53,354 on Sunday. The collapse beat out other major cryptocurrencies, which also posted losses.
This Monday, the digital currency market appears to rebound as analysts determine the possible reasons for the sudden price correction. Among the theories, some say that a massive blackout in Xinjiang province, one of the dominant areas for Bitcoin mining operations in China, may have been the main factor behind the drop.
Massive power outage in China shuts down miners
The hashing power of significant Bitcoin mining pools in northwest China appears to have plummeted due to a regional power outage for security inspections.
The hash rate or “hash rate” is the unit of measurement of the processing power of the Bitcoin network. This hash rate is a crucial security metric. The higher the hashing (computing) power on the web, the more excellent its security, and overall resistance to attacks.
A report by Wu Blockchain, the author of the Chinese crypto newsletter Wublock, noted the significant decreases in the hash rate of several major groups, with Antpool dropping 24.5%, Binance Pool dropping 20%, BTC.com dropping 18.9%, and Pooling. They were dropping 33% last week.
Another article by Chinese media outlet Wu Talk stated that the Xinjiang region is currently undergoing a “comprehensive security inspection for power outages.” The inspections follow a recent accident related to a flood at a local coal mine that saw 21 miners temporarily trapped in three different locations.
China is a leader of two-thirds of the world’s mining power, with the Xinjiang region being a significant source of Bitcoin’s global hash rate. The Cambridge Bitcoin Energy Consumption Index (BECI) estimates that Xinjiang currently accounts for nearly 36% of China’s combined hash power and almost a quarter of the global hash rate.
If Hash Rate Falls 40%, then BTC Falls Back
Blockchain Analyst Willy Woo shared a thread of tweets on the matter. He explained that the massive drop in Bitcoin price on Sunday might have directly responded to the decline in the hash rate, which saw the most significant 24-hour decrease in the last four years.
Woo also noted that, as a knock-on effect, the decline in the hash rate is also in the company of intense selling pressure from Bitcoin whales on significant cryptocurrency exchanges. Shortly after the event, a total of 9,000 BTC went to Binance, Woo explained. He speculated that the intention to sell might have come from an investor with intimate knowledge of what was happening in China.
“I would like to highlight that Binance caters for volume from Asia more than the West. This volume catering is likely to have been sent from a whale with a closer knowledge of Chinese events. “
Woo added that the selling pressure from these two events combined was enough to tip the price below the liquidation levels around $ 59,000, triggering a cascade of automatic liquidations when the detection of losses took place.
Whales and Bitcoin during the Crash
The downside momentum prompted $ 4.9 billion worth of Bitcoin liquidations and another $ 4.4 billion in margin calls in the altcoin markets, recording about 1 million settled accounts. Another essential consideration is assertive sale behaviour in the futures markets.
Meanwhile, according to Ycharts, the hash rate of the Bitcoin network shows a balanced level of 154.29M, down from 164.85M yesterday. This hash rate represents a brief change of -6.40% in the last 24 hours. For other experts in the community, the blackout event has a solid connection to what happened in the market.
By: Jenson Nuñez