Bitcoin: No Safe Haven by Itself, but Reliable Yardstick for Crypto Miners

The market landscape changes so frequently that investors and traders are getting increasingly puzzled as to what to do next. This leads to their increasingly erratic behavior. Stocks are getting cheaper and the bond market is dropping to an 8-year low. Risks are at elevated levels, last seen in early 2020 when the pandemic swept the planet. However, the current picture stems from the events of 2020, so we can safely assert that history will repeat itself this time around again.

The Russo-NATO-Ukrainian conflict has only exacerbated the preexisting problems resulted from prolonged pandemics’ related supply disruptions and world’s major central banks’ unpreparedness to fight inflation amid uncertain paths of post-pandemic economic recoveries. As a result, many market participants are turning away from risky assets, and cryptocurrency speculation is in the daily news slowly but surely undermining our collective confidence. Since the digital currencies crashed from their November 10 peaks, the speculative frenzy has subsided. At the end of January, observations, Ethereum and many other cryptocurrencies updated local lows (which are even now closer to their highs at the end of 2021).

The truth is that drawdowns of Bitcoin and Ether scared off primitive speculators, who infested this market with just a fistful of money with the only thought that a fortune can be made for a song – something that has been luring speculators of all stripes and breeds and served as “slow fuel” simmering general crypto, DeFi and NFT markets up until recently. But the equal truth is that although many of them withdrew and walked away at this point, they still have virtually nowhere to go.

As we can see from the price history of Bitcoin, 2017’s bull run ultimately gave way to around an 18-month period of considerable stagnation before a larger rally in 2020 emerged. Although it’s fair to say that Bitcoin’s most recent troubles have been influenced by ongoing economic troubles stemming from accelerating inflation and peaking inflationary expectations, geopolitical tensions, and the lingering threat of more complications from the Covid-19 pandemic, the cryptocurrency has so far struggled to maintain its reputation as a decentralized store of wealth.

Up until the recent months, Bitcoin was named as one of the apparent beneficiaries of economic downturns in terms of its store of wealth properties for investors. Because the cryptocurrency is decentralized, it has no physical location and operates externally from stock markets and domestic currencies.

Some investors and cryptocurrencies’ enthusiasts hoped that a surge in inflation, undermining the purchasing power of fiat currencies, would support tokens. That theory was based on the fact that central banks can manipulate the money supply to help the economy or rescue the political agenda, while mining is the only way to increase the supply of cryptocurrencies, and it’s under control of all of us.

Now we can sadly say those hopes were likely nothing more than a wishful thinking; even the 40-year-high inflation didn’t result in the demand spike for Bitcoin, Ether, and most other cryptos, of which there are close to 20,000 now. And all this is happening against the backdrop of a rise in the DXY dollar index triggered by an increase in the Fed’s interest rate. As a result, inflationary pressures pushing up USD yields have taken a toll on cryptocurrencies.

However, according to a Cambridge Centre for Alternative Finance report, it seems that Bitcoin mining companies are even experiencing a revival of their activities to some degree. New data on global Bitcoin mining released by the Cambridge Centre for Alternative Finance (CCAF) as part of the Cambridge Digital Assets Programme (CDAP) confirms the growing dominance of the U.S. and reveals a surprising resurgence. Far from being overwhelmed by the crisis, mining farms continue to resist the various bans against them. Examples are the abolition of mining in China or the slowdown of mining companies after they were required to change equipment to be more environmentally friendly.

Nevertheless, while this remains good news for the industry, the concerns of environmentalists also remain legitimate. An increase in hash rate means that farms are using more electricity at the time when, because of geopolitics, general demand for fossil fuels, including those used to produce electricity, is feared to soar. We bet this dilemma will be solved on behalf of cryptocurrencies’ prices recovery.

Is A Crypto Winter Always A Bad Thing?

Despite many business media critics began speculating about the imminent prospect of another crypto winter like that of 2018 and 2019 – still is being a very speculative notion, and such free judgments shouldn’t negatively impact overall investors’ sentiment towards cryptocurrencies as a whole.

Although its volatility may suggest otherwise, Bitcoin has historically proven itself as a long-term hold for investors who keep their exposure low and embrace the lows as well as the highs. Experts often recommend keeping crypto investments below 5% in their portfolios, and whilst a bearish trend will negatively impact the market, it can present better buying points for new investments.

When the last update of the Cambridge Bitcoin Electricity Consumption Index (CBECI) was released, representing a mining map in October 2021 (covering data up to the end of August 2021), the Bitcoin network was grappling with the consequences of the Chinese ban on domestic crypto mining. The Chinese government crackdown immediately resulted in a harsh decline of the total hashrate – the network’s aggregate computing power – which bottomed at 57.47 Exahashes per second (EH/s) on 27 June 2021.

Graph 1. Bitcoin Energy Consumption Index

However, the trend quickly reversed as miners began to relocate operations abroad, and by the end of the year, total network hashrate had almost fully recovered to pre-ban levels (193.64 EH/s on 21 December 2021). What’s more, the upward trajectory continued in early 2022 and culminated in a new all-time hashrate high of 248.11 EH/s in February, demonstrating considerable resilience and flexibility of the Bitcoin mining industry. As a result, it is worth noting the distinction between absolute hashrate levels and relative country shares when analyzing country-specific factors: a shrinking country share does not necessarily imply a decline in domestic mining activities, but may rather indicate stagnation or slower growth relative to the rest of the world.

Now, exclusive data obtained in collaboration with partnering mining pools, Poolin, ViaBTC, and Foundry provides new insights into the whereabouts of this new hashrate capacity. As the remainder of this post will show, it turns out that the hashrate recovery has not been distributed evenly.

Several leading figures, such as Elon Musk, are looking for ways to make mining environmentally friendly, and they want to reduce the crypto meltdown effects. Meanwhile, events such as the ban on mining in China have only worsened Bitcoin’s ecological footprint. In addition, the record revenue of Stronghold Digital Mining, which uses coal to mine Bitcoin, is a great indicator of this. The price drop of Bitcoin has only reinforced the financial objectives of mining farms. In order to remain profitable after the recent crypto price falls, they must mine more and for longer – if they want to earn the same amount. The same applies to Ethereum farms whose hash rate has jumped.

Graph 2. Bitcoin Price vs. Hash Rate

Ethereum has been winning the fight for the past few months in terms of profits for miners. Ethereum miners earn four times more than those in the Bitcoin industry.

Crypto Meltdown Effects

Nevertheless, the risk of a mining collapse is still possible. But, far from worrying about the impact of Crypto meltdown effects activity, mining farms continue to run at full speed.

According to an article in Science Alert, “Bitcoin’s value has temporarily fallen below the cost of production several times before without significant long-term damage to the hash rate. But if the market stagnates long enough, proof-of-work cryptocurrencies will start to see an increasing number of miners capitulate.

Miners with the highest costs are likely to sell their Bitcoin holdings as profitability drops, creating even more selling pressure in the market. Short-term capitulation among low-cost small mining companies (often using intermittent renewables) is normal. But a domino effect with the closure of large mining companies one after the other could cause crypto prices and network carbon emissions to drop rapidly to zero.”

Graph 3. Bitcoin Price vs. Average Mining Difficulty

Three reasons to Expect Crypto Recovery

During periods of active rallies and sales, prices often reach unreasonable and irrational levels. In 2020, WTI oil prices plunged to unprecedented negative levels, and just two years later, one barrel cost more than $110.

The volatile nature of cryptocurrencies only exacerbates this picture. We have identified three factors that will eventually lead to an upward market reversal:

• The libertarian ideology of cryptocurrencies rejects the idea of ​​state control over the money supply. As government credibility declines, digital assets are likely to play a more important role in the global economy.

• A hawkish monetary policy is laying the groundwork for the next crisis, which will lead to another injection of liquidity and, hence, depreciation of fiat currencies. Geopolitical tensions and the effects of supply-demand imbalances do not have any negative impact on alternative media of exchange, which have already gained serious acceptance.

• Cryptocurrencies are the embodiment of the fintech revolution, increasing the speed and efficiency of transaction accounting systems. The further widespread blockchain adoption will lead to the further development of not only cryptos, but the officially targeted digital currencies as earmarked tokens of these systems.


The sell-off of cryptocurrencies, in which they form a series of descending patterns, warns of worsening economic conditions, and central banks and governments now look like frightened “deer” facing the economic and geopolitical headlights. However, the current ambiguity engulfing cryptos coupled with preserving miners’ capacities and willingness to conduct mining operations in the same intensity leads to higher energy consumption and the mining assets’ depreciation, which are the self-resolvable phenomena pointing to inevitability of the price recovery. It can be argued with a high degree of probability that as soon as cryptocurrencies find the bottom and return to the upward trajectory, all sorts of buyers, including the currently lurking opportunistic buyers, will return to the market.