The Bitcoin Death Spiral Theory - How Bitcoin (BTC) Can Go To Zero

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1 year ago

During bullish cycles, prices of cryptocurrencies rise abruptly, while profitability in mining operations of PoW networks flourishes as miners expand their operations and increase hashrate. New mining farms appear, and new ASIC models are sold out immediately.

Things are not always rosy in the Cryptoverse, though.

Euphoria doesn't last, but prices peak with speculation reaching parabolic levels, and a devastating collapse follows.

As the difficulty of producing a new block reaches unsustainable levels, miners shut down part of their hashrate-generating devices and dismantle their operations, exiting cryptocurrency mining completely.

As prices of cryptocurrencies drop at a frantic rate and trillions of dollars evaporate from the market, the profitability of miners also declines, and a logical argument from the early Bitcoin days resurfaces:

The Bitcoin Death Spiral

When ASICs Thrown in the Streets!

The Bitcoin Death Spiral is a theoretical concept following a logical assumption that the BTC network can come to a halt and not produce a single block ever again.

First, we have to dig deeper into mining and profitability.

(Mining equipment thrown in the street, 2018, source: Dovey Wan, Twitter)

During a bear market, we should expect to read about ASIC equipment thrown out in the street and mining operations dismantled or shut down.

Miners operate a business aiming at a profit and long-term viability, yet the price of Bitcoin (BTC) lately thinks otherwise.

A massive halt of mining operations is possible during conditions that can trigger severe viability issues for the BTC network and completely alter the crypto landscape as we know it.

ASICs: The Mining Hardware

The term ASIC is an acronym for Application-Specific Integrated Circuit.

ASICS are produced industrially and used for the mining of SHA256 (and other hash functions with minor differences) used in the protocols of Bitcoin (BTC), Bitcoin (BCH), Litecoin (Scrypt), Doge (Scrypt), and other proof-of-work cryptocurrencies.

ASICS contain a "useful life", which expires faster than their typical functioning life cycle, as the difficulty of mining for PoW blockchains keeps rising, or the price of the cryptocurrency it mines (BTC in this case) drops below a certain level.


Bitcoin mining reached an industrial scale in the early days, with the manufacturing of the first ASICs.

Miners realize they will be out of business if they don't upgrade hardware.

Staying competitive demands investing part of the profits in new assets. Yet, miners also understand that the price of the cryptocurrencies they mine also describes their sustainability.

S9 Antiminers became obsolete in 2018, although the 2019 price action of BTC revived them temporarily as the difficulty (cost) and the higher BTC price made these machines profitable again.

In 2018 after the last dip in the Bitcoin (BTC) price, some miners shut down operations while others dumped their S9s (and older models) and sold them for scrap.

Miner Shutdown Price

Bitdeer announces monthly the shutdown prices for Asic equipment:

(values with electricity cost: $0.075/kWh - source)

The extreme rise of hashrate for BTC between 2020 and 2022 was disanalogous to the price action, with mining profit margins vastly overestimated.

The price of BTC is at critical levels, as in the likelihood BTC drops again to $10,000, then at the current hashrate and difficulty levels, most of the mining equipment will be operating at a loss (on average).

The average cost of electricity (globally) is $0.075/kWh.

With a price of $10,000 for BTC and the current mining difficulty, most of the mining hardware will halt.

There is an event that many think is likely possible.

The Bitcoin Death Spiral

The Bitcoin Death Spiral is a theoretical concept assuming that the BTC network can potentially halt and not produce a single block ever again.

A catastrophic event that demands centralized intervention and re-adjustment of the mining difficulty under a hard fork.

Either way, such an occurrence will have terrible implications on the price of Bitcoin (BTC) and perhaps the whole PoW concept.

Reduced Mining Revenues:

Daily BTC miner revenues dropped significantly lately (-32%) as the price of BTC was severely struck by a vast sell off.

Miner Loans Under Stress:

Reports suggest $4 Billion in miner loans are underwater, perhaps creating the most massive issue Bitcoin (BTC) and cryptocurrencies will have to face in the coming months.

Miners borrow to grow using the mining rigs as collateral. With Bitcoin (BTC) back into the 2020 price range, the price of modern mining rigs drops significantly.

Undercoletarlized loans are increasing since the market price of ASICs follows the decline in the price of BTC.

According to Bloomberg: Bitfarms Ltd. sold half of its mined coins to repay a Galaxy Digital Holdings loan and took a new loan from NYDIG, and Core Scientific sold 2000 Bitcoin (BTC) in May to sustain its operations.

If the market doesn’t improve, analysts warn it could be an ugly scenario.

The mining ecosystem looks worse than in 2018, when hashrate kept advancing as the mining cost was cheaper and concentrated in alternative energy sources in China.

The cost of mining a Bitcoin varies today between $8000 and $20,000.

Miners bought tens of thousands of machines, signed up for hosting, put the deposits down and now they can’t fulfill

Wilfred Daye - Securitize Capital

Inflows of investors in the market don’t seem able to recover soon.

Bitcoin (BTC) reached the price level of the previous bull run, and there will be more issues for miners if the price drops to $10,000, or lower.

At $8,000, the large miners will operate at a break-even point, while at a Bitcoin (BTC) price lower than $8,000, almost every miner will operate at a loss and risk of collapsing to their obligations. 

Bitcoin Difficulty (and Difficulty Adjustment)

Miners select from the mempool all the Bitcoin transactions they can fit into the block (1MB for BTC, 32MB for Bitcoin Cash).

The miners then enter a race to mine this block, and the first one that solves the cryptographic puzzle mines the block and propagates it to the rest of the network for verification. The verified block owner is the owner of newly mined coins and any fees the transactions in the block contained.

The Bitcoin (BTC) network readjusts the difficulty of the SHA256 algorithm to sustain a specific time gap (block time) between each block produced. 


The BTC network experienced a sharp decline in hashrate (and difficulty) in May 2021, when China ordered mining farms to shut down.

What Exactly Is The Bitcoin Death Spiral Theory?

The difficulty of the Bitcoin (BTC) network readjusts every 2016 blocks (approximately every two weeks).

The Bitcoin Death Spiral Theory suggests that the current PoW model of Bitcoin (BTC) will cause the network to halt under certain circumstances.

A devastating price reduction of Bitcoin (BTC) below the production cost will make most miners shut down their operations.

This theory assumes miners will reduce hashrate by 90-95% at the beginning of an epoch, so the next 2016 blocks will suffer from a devastating increase in block-time, since the difficulty will remain stable at a high level until the next epoch (after 2016 blocks).

As the hashrate drops, mining a single block (inside a 2016 block epoch with stable difficulty) will demand more time than the 10-minute average.

Mining a single block can take hours, days, weeks, or even months, depending on the decline of the network's hashrate.

The network will demand a hard fork to resume as consensus rules will change.

Some suggest that Bitcoin holders would voluntarily sustain the network by transacting with significantly higher fees, an approach that would increase mining profitability.

Miners will shut down operations and perhaps periodically restart to mine these transactions that would make it profitable to continue.

Yet, the price of Bitcoin (BTC) will keep dropping as the uncertainty of the network will make all holders in exchanges sell, and shorts will significantly rise. No matter the high fees, the price of BTC will keep dropping, and fees alone will not sustain mining operations, as ultimately nobody will donate funds to miners to sustain a failing procedure

An event like this one will be catastrophic to the value of Bitcoin (BTC).



The theory of the Bitcoin Death Spiral has been condemned countless times by BTC maximalists, although the only reasonable argument they offered was a centralized intervention and a mandatory hard fork to keep the network running.

The 2016 block epoch (difficult adjustment time) presents a point of failure since the price of BTC is the sole factor that keeps the network operable. The higher the price, the more the profitability for mining. Yet, demand for Bitcoin BTC is not constant, and the weak network of cryptocurrency exchanges is excessively relying on Tether (USD) and inadequate guarantees of its reserves. As the BTC price and the mining values change weaknesses in design become noticeable.

Eventually, the death spiral could be instigated and supported massively in case BTC ever becomes a threat to the fiat money. However, Bitcoin BTC is at the mercy of Wall Street today, favoring regulations, unlike its revolutionary past.

Bitcoin Cash removed the 2016-block difficulty adjustment with the 2017 upgrade of Bitcoin and dynamically adjusts difficulty every block, eliminating the threat of a death spiral event since it would only take one block for the difficulty to adjust to the current hashrate.

In the rare case a death spiral occurs in the Bitcoin (BTC) network, the reasons will be greed, speculation, and incompetence. Such an event will lead to further loss of reliability and further price collapse.

  • Cover Photo by " kummod ", on Pixabay (modified)

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1 year ago


That's certainly an interesting game theory (I don't know if that's the right term but I guess you know what I mean). Bitcoin's difficulty adjustment is often praised as its most critical element, its special sauce that keeps it valuable no matter what the price. However, the scenario you present brings the miners into a tight squeeze.

I was not aware of the fact that Bitcoin Cash's adjustment changes dynamically, thanks for pointing that out.

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1 year ago

I didn't agree with maximalists mind set up. BTC better fork version in form of BCH is present. I hope BTC will never collapse to zero if it happened then it will be worst day of history.

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