Will Bitcoin fall into the "drilling death spiral"?

Hello! all My Friends

Bitcoin will not fall into the "healing spiral of mining."

why?

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Bitcoin is intuitively attractive because miners are mining into a spiral of death: the bitcoin price has fallen sharply, and eventually shut down due to no profit, one after another, and finally all miners left because no one is mining Bitcoin eventually fell into dying.

There are several core assumptions in this argument: $BTC will trade below $1,000, and the hash rate drops sharply before the difficulty adjustment. This variable represents the difficulty of bitcoin digging a new block. In the short term, a strict rational mining union chooses to close all mining machines or dig other alternative cryptocurrencies without continuing to mine in the loss.

From this scenario, the difficulty adjustment of Bitcoin does not happen every two weeks. The system makes natural adjustments to the difficulty of bitcoin mining every 2016 block, with an average probability of about two weeks.

The biggest problem with the case of mining death spirals is that we have seen before. As early as 2011, the statement about it was welcomed on the Bitcointalk forum. Recently, the bitcoin fanaticism of the ASIC era has revived in the final round. Messari CTO Dan McArdle mentioned in a tweet dated January 28, 2015: "Everyone is arguing about price drops -> Miners leave -> caught in a systemic incentive failure spiral? Has it not happened after all? #duh"

Of course, mining industrialization has profoundly changed the status quo of the industry, but the basic game theory of Bitcoin remains unchanged. Bitcoin analyst Nic Carter explains these possibilities:

Prior to the so-called death spiral, Bitcoin can perform an emergency fork and manually adjust to a lower difficulty (to speed up the process to the next natural adjustment). Of course, this is very unpopular and is considered the last resort.

There is also a third situation and possibility, which is not shown in the above figure. In the difficulty adjustment period, when the hash rate drops sharply, as a market-funded incentive, the miners are rewarded with higher transaction costs, allowing the miners to retain.

Before making the conclusion that bitcoin will fall into the spiral of death, it is important to understand the concepts of some miners and their relationship to difficulty adjustment:

For many miners, the “balance of revenue and expenditure” is far below the analysis of many analysts. Many analysts focus on ordinary miners. Many of the most profitable miners have a "per bitcoin cost" (opex+capex), which is approaching zero. They have a lot of electricity subsidies, even free or negative costs, and there are a lot of low-cost ASIC mines, which usually integrate vertically or get preferential deals from hardware manufacturers. The combination of these results creates their cost advantage.

Similar to producers in other markets (such as traditional commodity markets), miners also have a number of limiting factors that force them to continue mining at a loss. These constraints include long-term power purchase agreements, hardware purchase agreements, facility leases, and other financial arrangements. Due to these constraints and the strategic plan's cash reserves, miners can mine at a loss for a longer period of time.

Unlike other commodities, due to increased market supply, mining at a loss leads to continued price declines, and rational miners hope to mine to accelerate the next difficulty adjustment. The miners who have persisted in the bear market have gained a huge competitive advantage, just as the miners we saw in the previous market.

The nuances of bitcoin game theory—charged markets, miners' incentives, etc.—are often misunderstood and interpreted as attractive narrative descriptions rather than historical and pragmatic analysis.

The future will be better than this narrative description!

------ Risk Warning: All articles in Blue Fox Note do not constitute investment recommendation, investment is risky, investment should consider individual risk tolerance, it is recommended to conduct in-depth inspection of the project and carefully make their own investment decisions.

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