In the past, declines in hashrate have coincided with several large BTC price adjustments. Hashrate refers to the total computing power involved in verifying transactions in the Bitcoin (BTC) blockchain. More computing power means greater network security and interest in bitcoin mining potential.
The computing power of the Bitcoin network as an indicator of the price increase
The increase in computing power is often associated with expectations of an increase in the BTC price. Analysts found evidence that the bull cycles of 2013 and 2016 were characterized by increasing difficulties in mining Bitcoin.
For example, a 70% increase in 2021 coincided with many investments and large orders for miners’ computing equipment. Even so, it is almost impossible to determine which of the above is the cause and which is the effect.
Some other examples related to this situation: Argo Blockchain buys 320-acre land in Texas (approx. 1,294,994 m2) in order to expand its operations, the Bitfury-dependent mine goes public, the Chinese lottery service takes over mining pool BTC.com.
How is it in the end?
However, there have been times of absolute dissonance. So maybe there is no direct relationship between Bitcoin’s price and computing power? Despite the fact that it is practically impossible to measure precisely – the seven-day average hashrate gives relatively good results in detecting changes in subsequent price trends.
2017 stood out in terms of the BTC price as Bitcoin then entered a phase of parabolic price increases. In August, the hash rate tripled to 6.8 TH / s. The theory that hashrate could predict Bitcoin’s price was undermined when processing power suddenly dropped by 25%. This did not have a visible impact on the price at the time.
On the other hand, Bitcoin’s rise in price by 132% in the last two months of 2017 seems to be mirrored just a few months later. Hashrate more than doubled between December 2017 and March 2018.
The second half of 2018 and 2019 provide more interesting data. The BTC price faced more vigorous spikes and periods of stagnation. Meanwhile, the hash rate has doubled from April 2018 to November 2018, peaking at 54 TH / s. Interestingly, this preceded a sharp BTC correction to $ 4,000.
Both indicators hit the bottom in mid-December 2018, while the first half of 2019 showed a synchronized jump between the BTC price and the hash indicator.
The second half of 2019 saw completely opposite trends, the hash index increased by 66%, while the BTC price dropped by 38%. This time around, the BTC price peaked at $ 10,200 in mid-February 2020. For the hash indicator, it happened just three weeks later.
Bitcoin’s current price and hashrate rank ATH
The latest figures show a strong relationship between the two indicators. The hash rating of 166 TH, which peaked for the second time on February 8, seems to be being followed by BTC, which hit nearly $ 55,000 two weeks later.
There is a strong relationship between hashrate and price. Although there have been periods of six (or more) months when miners’ power continued to rise despite stagnation in BTC prices.
The same can be said for sharp drops in the hash index, such as the last one in October 2020, which had no impact on the BTC price. Therefore, such a measure for predicting short term price movements seems unreliable. In other words, the hash and price trends, while dependent, provide tons of mixed signals that can certainly be misleading.
However, despite the apparent long-term relationship, there are also other factors to consider. These can have a more direct impact on the price – new miners’ equipment, regulations, seasonality, geography and energy price fluctuations around the world. These are just some of the potential causes that are upsetting correlation.