IN TODAY'S ISSUE:
- We look at what might be behind the recent drop in hash rate.
- How the seasonal effects of hash rate have changed with the U.S.’s leadership in bitcoin mining.
- The growing problem of digital identities in the AI age.
Decline in Hash Rate Raises Questions
Bitcoin is approaching its next difficulty adjustment, scheduled for sometime Saturday, the recalibration that occurs every 2,016 blocks (approximately every two weeks) to ensure blocks are produced on average every 10 minutes, amidst changing network hash rate. The current projection is for a 7% decrease in difficulty, though at one point it was on pace for a drop of nearly 10%, which would have marked one of the steepest downward adjustments in recent years. With various global factors potentially influencing the network’s hash rate, from conflicts around the world to extreme weather, we dig into some of the dynamics around hash rate.
Examining the changes in hash rate across major mining pools may offer clues about the recent decline in the overall network hash rate. It is difficult to determine the precise origin of miners since IP addresses can be masked using VPNs, obscuring geographic location. Even pool operators may not have full visibility. However, we do know that certain pools tend to serve clients in specific regions. For instance, Foundry primarily caters to professional miners in the U.S., whereas Antpool and ViaBTC are more commonly associated with miners based in Asia.
What Pool Level Data Shows
As the following graph shows, we see that the biggest hash rate declines came at both Foundry and Antpool over the current difficulty adjustment window. Furthermore, we saw sharp declines at several pools, including Foundry and Antpool, in the early hours of Monday morning, June 23rd. Our initial assumption was that the drop in hash rate might be linked to one of the ongoing conflicts, such as those in Iran or between Russia and Ukraine. However, we found no supporting evidence to suggest that the decline was related to any of these conflicts.
Inclement weather and extreme heat, which drive up electricity prices, can make bitcoin mining unprofitable and lead to hash rate curtailment. The Northeast and parts of the Midwest were hit by intense heat this past week, potentially prompting miners to scale back operations due to elevated power costs. This explanation is especially plausible for Foundry, which primarily serves U.S.-based miners. The decline in Antpool’s hash rate may also be linked to similar weather-related factors. Approximately 36% of Bitmain’s former mining equipment, now operated by Cango, is located in the U.S., primarily in Georgia, a state that also faced extreme heat this week. While not conclusive, the evidence points to hot weather and power curtailments as the most likely causes of the decline, and subsequent rebound, in network hash rate.
Looking at Hash Rate Seasonality
As we conducted this analysis, we were reminded of past summers when similar dynamics played out—hot weather drove up electricity prices, prompting miners to either shut down uneconomical rigs or sell power back to the grid. With that context, we examined the monthly changes in hash rate to uncover potential seasonality. However, the full monthly history reveals little beyond a pattern of extreme volatility. Even when averaged or viewed through the median, the data offers few insights beyond the sheer unpredictability of month-to-month shifts.
A distinct pattern emerges when we divide the data into two periods: the China-dominated mining era (2013–2020) and the post-China ban era, where the U.S. has become the leading mining hub (2022 onward). As a reminder, China implemented a sweeping ban on bitcoin mining through a series of escalating actions in the spring of 2021, culminating in the most severe crackdowns in June 2021, a moment visible in the preceding hash rate table.
During the China-dominated era, mining seasonality was heavily shaped by the hydropower cycle in Sichuan and Yunnan, provinces rich in renewable energy. Their rainy season, typically spanning late May through September, provided abundant, low-cost electricity that encouraged consistent and sizable increases in hash rate.
When we split the calendar into the hydro season (June–September) and non-hydro season (October–May), the contrast becomes even more apparent. During the China-dominated period, hydro season not only delivered higher average and median hash rate gains but also demonstrated greater consistency, with 90.6% of months showing increases, compared to 83.9% in the non-hydro season.
Following the 2021 crackdown, we transitioned into the U.S.-led mining era, beginning in earnest in 2022. In this period, a new seasonal pattern has taken hold. The summer months—particularly May through August—are now associated with reduced hash rate, as miners increasingly curtail operations due to heat-driven energy demand spikes and higher power costs. This is the dominant seasonal rhythm today, and likely explains the recent observed declines in hash rate.
Final Remarks
The evolution of bitcoin mining geography has brought with it a fundamental shift in seasonal hash rate dynamics. While the China-dominated era was characterized by predictable growth during the hydro-rich summer months, driven by surplus renewable energy, the post-ban U.S.-led era reflects a very different reality—one where summer now brings constraint rather than expansion. We think that is most likely the biggest reason for the decrease in hash rate, and will continue to be at play as we move through the summer months in the U.S.
Digital Identities, Proof of Work, and Iris Scanning
WorldCoin, now rebranded simply as World, has been making headlines recently. The project, known for its digital currency and its signature Orbs that scan users' irises to generate a unique digital identity, has sparked both intrigue and criticism. At the core of its vision is the creation of World ID, a universal digital identifier aimed at verifying real human users online. Backed by prominent figures in Silicon Valley, the initiative has garnered significant support—but also considerable controversy. In an era marked by rampant misinformation, state-sponsored propaganda, and increasingly convincing AI-generated content, establishing trust and verifying authentic digital identities has become an urgent and complex challenge for society at large.
Addressing the challenge of digital identity was a foundational hurdle that autonomous digital currencies, those designed to operate without third party intervention, needed to overcome. While earlier attempts like DigiCash/eCash explored this space, they ultimately failed due to their reliance on centralized intermediaries. It wasn’t until the advent of Bitcoin that this issue was solved, giving rise to the first autonomous cryptocurrency.
PoW Solved the Digital Identity Problem
In his seminal white paper, Satoshi Nakamoto introduced the concept of “one-CPU-one-vote”, describing how Bitcoin’s Proof of Work (PoW) mechanism inherently addressed the identity problem. Rather than relying on account-based identity, Bitcoin used computational cost as a proxy for trust, making it expensive to generate multiple fake identities. This property, known as Sybil resistance, ensures that no actor can easily gain disproportionate influence by creating numerous identities.
While it is still technically possible for a single entity to control multiple miners, as seen in the rise of industrial-scale mining operations, executing a 51% attack, which would allow an entity to control the network, requires an enormous amount of capital. At the current network hash rate of approximately 800 EH/s, a 51% attack would require deploying mining hardware on the scale that few entities could marshal. Using current-generation machines like the Antminer S21 XP, the estimated capital investment needed would exceed $12.3 billion, making such an attack economically prohibitive.
Digital Identities Remains an Unsolved Problem
Outside the realm of cryptocurrencies, where PoW operates on a “one-CPU-one-vote” model and Proof of Stake (PoS) operates as “one-coin-one-vote,” the challenge of establishing unique digital identities remains a critical and unresolved issue, one that increasingly threatens the social fabric. Over the years, various attempts have been made to tackle this problem. In 2014, Albert Wenger of Union Square Ventures documented a wave of identity-focused initiatives, including Namecoin and Onename, which eventually evolved into Blockstack, the developer behind the Stacks (STX) cryptocurrency.
Despite these attempts, the core problem remains unsolved. Now, World has entered the arena with its latest attempt to establish a global digital identity system, offering users cryptocurrency as an enticement to register their identity. Whether it will succeed is still unknown. What is clear, however, is that the need for a solution is becoming increasingly urgent. As AI-generated content, deepfakes, and misinformation proliferate, the absence of reliable unique digital identities is compounding societal fragmentation.
The Identity Vacuum
Attempts to solve the digital identity crisis have largely come from two directions: economically incentivized initiatives like World, and user-led efforts. Yet, despite the growing urgency, there has been virtually no meaningful top-down initiative to address systemic issues. In fact, the One Big Beautiful Bill currently under consideration in the House appears to move in the opposite direction. It stipulates a 10-year moratorium on state-level AI regulation while offering no substantive federal framework.
This absence of coordinated oversight leaves a critical gap, especially with digital identities. Satoshi recognized and solved this problem for Bitcoin. Will society do the same?
Market Update
Bitcoin climbed 3.2% over the week, riding the broader recovery in risk assets. Equity markets rebounded from their tariff-driven pullback, pushing to fresh all-time highs. Meanwhile, tensions with Iran appeared to ease, fueling the rally and sending oil prices back to pre-conflict levels. In this risk-on backdrop, gold lost momentum, while bonds found support amid renewed expectations that the Federal Reserve could cut rates by year-end, although a move at the July meeting now seems unlikely given Powell’s testimony before Congress this week.
Corporate bitcoin treasuries continue to be highly topical, with Columbus Circle Capital SPAC set to merge with Anthony Pompliano’s ProCap, which raised over $750M to buy bitcoin. Metaplanet continued to add to its corporate treasury, while miner Bit Digital did the exact opposite, shifting its strategy away from bitcoin to focus solely on ETH ownership and staking.
Important News This Week
Investing:
Millennials, Gen Z Investors Ditch Stocks, Bonds for Pre-IPO Unicorns, Crypto - Bloomberg
Regulation and Politics:
SEC's Hester Peirce Says In-Kind Redemptions for Crypto ETFs Are 'On the Horizon' - The Block
The OCC Has Also Received A Charter Application From Fidelity Digital Assets - X
Fannie, Freddie Prepare to Count Crypto as an Asset for Mortgages - X
Companies:
Anthony Pompliano Strikes $1 Billion Merger to Create ProCap Financial - Source
Fiserv Launches New FIUSD Stablecoin for Financial Institutions - Fiserv
Tether CEO Paolo Ardoino Says Firm 'Will Become the Biggest Bitcoin Miner' By End Of 2025 - The Block
Mastercard Taps Chainlink to Provide Direct, Onchain Fiat-To-Crypto Conversions for Cardholders - The Block
Crypto Firm BitGo’s Assets in Custody Jump to Top $100 Billion - Bloomberg
Coming July 21: US Perpetual-Style Futures - Coinbase Derivatives
H1 2025 Crypto Hacks and Exploits: A New Record Amid Evolving Threats - TRM
CoreWeave in Talks to Buy Core Scientific - WSJ
Upcoming Events
Jul 2 - Final SEC deadline for decision on GDLC ETF conversion
Jul 8 - 90-day tariff suspension ends
Jul 15 - CPI release
Jul 22 - EO Working Group report deadline
Jul 30 - FOMC interest rate decision
