• Francisco Hernandez

Shedding Light on China Floods and Bitcoin Hashrate Drop


In the last week, there have been record breaking floods in the Sichuan province of China (The Guardian, 2020). The floods have affected thousands of people and caused billions of dollars in damage. Among those affected were Bitcoin miners. Various crypto news outlets have since claimed that the floods have caused a "major" drop in hashrate, 10-20% depending on the source (1,2,3). One even claimed this was the third major drop in 2020. These crypto news outlets hopped on the news and sensationalized the floods and how it affected Bitcoin's hashrate. In this article, I present my data and analysis on the floods in China, hashrate, and Bitcoin. I suggest that the hashrate drop was exaggerated and was only mild to moderate.

Defining "major" drops using averages and standard deviations

According to a sample (n = 3,679) of data acquired from coinmetrics.io, the average hashrate drop is -7.98% with a standard deviation (SD) of -6.1%. This sample spans from yesterday all the way back to July 2010. By adding the SD value to the average, the +1 SD (-14.47%) is found. By adding the SD value times two, the +2 SD is found (-20.57%). Using these +SD values, I can determine what really is a "major" drop in hashrate. Typically, one SD (i.e., -14.47%) above the average is considered significant. Therefore, any values over -14.47% should be significant drops. An even more stringent criteria for defining major drops would be to use the +2 SD value of -20.57%. Using these criteria, I will define an average drop as -0.01 to -8%, a mild drop as -8.01% to -15%, a moderate drop as -15.01% to 21%, and a severe or "major" drop as 21.01% or more.

Hashrate drop categorizations

How many severe hashrate drops in 2020?

The article cited above, suggested this was the third "major" drop in hashrate of 2020. According to my data and criteria, there have only been two severe drops in hashrate in 2020: March 25th and April 6th, -30.3% and -26.86%, respectively. Further, there have been 16 moderate drops, 27 mild drops, and 71 average drops. While the article I cited above described the recent hashrate drop as "major", it was in fact only mild to moderate, falling between one-third of a standard deviation and two standard deviations above the average.

Total hashrate drops in 2020


As mentioned above, the recent drop in hashrate was mild to moderate. See the year-to-date hashrate below, it has essentially been flat all year. There was indeed a steep drop in hashrate, but looking at the history for the year, there have been other moments with steep drops. However, these drops did not make the news. While hashrate is affected and in flux by all kinds of world events, such as weather, power rate, farm swapping, etc., this flooding event, in the grand scheme of things, is just another event. Nothing to special about it regarding hashrate dropping. The way I see it, it was an event that crypto media outlets jumped on to sensationalize.

Hashrate in z-scores, year-to-date

Here is the hashrate history and percent change for the last four months:

Hashrate history gallery, four months

As can be seen, there have been a handful of events with moderate drops in hashrate in just the last four months, such as in May and June, before any major floods were occurring in China. Yet, none of those events resulted in news articles about hashrate drops.

Bitcoin price and hashrate

Touching on an observation I have made in previous articles, I expect for price to rise above hashrate like in image 2 below. When this occurs, mining becomes more lucrative. With the recent drop in hashrate, price teased the hashrate line, but was rejected (image 1). Price has generally remained below the hashrate line since after the 2017 bull market, only popping above hashrate for a little bit in late 2019 before falling back below. Price has since been teasing the hashrate line (image 3). Should there be another bull market, I expect price to rise and remain above hashrate as it did in 2016-17.

Gallery of current hashrate and price, pre-2017 bull market, and post-2017


In this article, I shed light on the sensationalized news that floods in China caused a "major" drop in hashrate in the last week. While it may have affected hashrate, it was only a mild to moderate drop. There have been other events where hashrate dropped in a similar magnitude, but no news articles were written about it; besides the drop in March, which was related to COVID-19 news. Crypto news outlets were quick to jump on the flood news and sensationalized the event. I defined different categories for drops in hashrate, plotted the number of drops per category in 2020, and discussed hashrate and Bitcoin price. I expect Bitcoin price to soon break up and over the hashrate line, which, to me, would indicate a Bitcoin bull market. For now, however, Bitcoin price has been teasing the hashrate line and remains below it.

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