2020 has become the year of the pandemic, and COVID-19 has affected nearly all reaches of life, including the cryptocurrency industry. To add to the uncertainty, right in the middle of the pandemic the Bitcoin halving occurred. We’ve seen hash rates and the price of Bitcoin fluctuate in the past few months — is COVID-19 threatening to destabilize the entire Bitcoin ecosystem?
Mining in the Time of COVID-19
One of the biggest impacts on the Bitcoin mining industry was the supply chain disruption caused by COVID-19. Companies and production went into lockdown or quarantine, and the reduced numbers of workers available due to illness caused massive delays in miner shipments. Not being able to receive new hardware or upgraded equipment in time meant that mining operations were running less efficiently until the supply lines caught up.
This was particularly impactful after the halving, which occurred in May. Halving is programmed into the Bitcoin protocol as a way to manage and regulate the ecosystem and happens every four years. It creates a check to inflation by cutting the reward a miner earns for adding a block to the blockchain in half. Before May, a miner would earn 12.5 bitcoins for solving and adding a block; after the halving, the reward was reduced to 6.25 bitcoins. In order to make what they had previously been making, miners now have to mine twice as much — actually more than twice as much, because not only were earnings cut in half, operating expenses still stayed the same — which means many miners needed to upgrade their equipment.
But because of COVID’s disruption to the supply chain, much of that new equipment was stalled. Those who still kept running needed to make sure they were squeezing every bit of efficiency that they could out of their machines.
Because mining would take more effort after the halving and would require an upgrade of equipment, many miners needed to evaluate if they wanted to continue mining and if it would be worth the investment. It’s a question miners would need to ask themselves post-halving anyhow, but this year, miners are asking “Is it worth it?” in the midst of a global financial crisis as well. COVID-19 impacted markets, economies, and individual income in a way we haven’t seen since the Great Depression. And with many people worrying about being able to simply pay rent and buy groceries, miners might be asking, “Would it be better just to liquidate my coins and turn my machines off?”
And that’s exactly what happened. After the halving, many miners turned off, resulting in a massive drop in hashrate. But we didn’t see that last for very long. Shortly after the drop, we saw a massive increase in hashrate, meaning that machines were turning back on or new machines were firing up. This corresponded to supply chains restarting, and getting updated miners to those who needed them. Since then, hash rates have steadily increased, and have surpassed where they were earlier this year and even last year.
Once mining hardware gets to where it’s going, they simply run with little personnel involvement, and there’s little worry about having a number of staff on-site during a pandemic. Additionally, because larger mining operations may have multiple sites — we at Genesis Mining have twelve data centers across six countries — we already know how to work remotely, another thing that the pandemic hasn’t significantly affected.
And since we’ve been successfully mining and scaling our operations at Genesis Mining for over seven years, we’ve dealt with the unexpected, and have learned and grown through trial and error. (And now we can say that we successfully weathered a pandemic, too!) You have to be ready to pivot, reallocate your resources, and rethink your strategy — and prepared miners did just that.
But COVID-19 exposed something else. There could be another explanation for more machines turning on and creating higher hash rates since the pandemic began: With the global economy suddenly thrown into uncertainty, many are seeing Bitcoin as the hedge they want against another pandemic in the future.
Bitcoin Proving Its Worth
With worldwide market distress and increased economic insecurity caused by COVID-19, Bitcoin is getting the chance to prove itself for what it was created to be: a stable currency, or what’s called a “safe haven asset,” meaning that it retains its value like gold does despite fluctuations in the marketplace. If Bitcoin provides a stable store of value, it could be the hedge against the dollar in a massive market crash.
What we’ve seen, though, is interesting: Bitcoin behaved like an investment. When markets dropped in mid-March, the price of Bitcoin did too. But it rebounded very quickly, and the price of Bitcoin has risen to some of its highest prices in years (as of August 2020 it’s at $11,000). But being treated like an investment option is a good thing, as it shows that Bitcoin is now in its investment stage of development. Its sharp recovery from the mid-March scramble for liquidating bitcoins shows that it has much promise — and we get to see it tested in real-time.
But as we’re in the middle of a pandemic, when financial systems are injecting money into economies and the risk — and fear — of inflation has risen, more people may look to Bitcoin as a better, more viable currency. With only a finite amount of coins available, it offers scarcity and stability, is able to be used in the global market, and yet is free from the control of any one government entity.
The COVID-19 pandemic is going to change our society in many different ways, from the way we communicate to the way we work to the way schools operate to the way we offer individuals healthcare. We may also emerge from this looking for new financial systems and more stable currencies, and will find them in Bitcoin.
