Hash Rate And Dominance Are Why Bitcoin Prices Are About To Explode

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Are Bitcoin Hash Rates and Difficulty Really Related to BTC Prices?

Today’s crypto pump may all be about the altcoins but on-chain bitcoin metrics have shown continual improvement over the past year. Hash rates are at all-time highs just as BTC price taps a two month peak, but are they connected?

Fundamental Metrics Strengthen
Hash rate has always been considered a good sign of network health. It is not directly correlated to price in the shorter term but does increase network security and horsepower over a longer time frame, which of course is bullish.
Since the beginning of 2020, bitcoin hash rate has increased almost 180% from around 40 exahashes per second to an all-time high of 117 EH/s a week or so ago.
Comparatively its two closest brethren, Bitcoin Cash and Bitcoin SV have been as flat as a pancake over the same period.

Bitcoin difficulty is also expected to undergo an imminent increase of 8% or so this week if it hasn’t already (charts are lagging a day or so).
LongHash has been looking into the trends to see if there is any correlation between these metrics and bitcoin prices.
Difficulty is up 133% since January first 2020, hash rate almost 180%, and price has climbed around 125% over the same period which would suggest there is some relationship.
During the latter part of 2020 bitcoin price plummeted along with hash rate and difficulty as miners capitulated. FUD regarding a mining death spiral emerged online but this was rapidly debunked and metrics began to recover in early 2020.
Are Bitcoin Prices Really Correlated?
The report continued to observer that BTC prices peaked in June 2020 but then began to pullback resulting in a 52% correction from peak to trough on December 18.
Hash rate, however, continued to climb along with difficulty during that six month down trend. This was because the mining industry works on a long term investment horizon with high initial hardware costs and long-term contracts for power and premises.
The hash rate therefore follows the long term trends rather than bitcoin’s short term price fluctuations.
The question then arises as to whether the halving in less than four months will affect BTC hash rate. Theoretically, it should as a lower mining profitability from a 50% block reward reduction may squeeze out some operations resulting in a decline in overall hash power.
The past two halvings have seen huge bitcoin price rallies which have resulted in more mining investment and greater hash powers. The outcome this time will largely depend on how the halving impacts bitcoin prices.
Industry observers are split between whether the halving has already been priced in and whether a larger bull run will occur after it as in previous years. Economic models such as stock to flow and energy value certainly suggest the latter, but only time will tell.
Will bitcoin’s halving crash the hash rate? Add your comments below.

Bitcoin Hash Rate Hits New ATH of 136.2 EH/s as BTC Price Starts to Grow Again

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After a serious drop that happened last week, Bitcoin price has started to frow again. Meanwhile, BTC hash rate has reached a new ATH.

Bitcoin price is expected to rise exponentially after the coming halving event. This at least is what many HODLers are expecting. This is because Bitcoin prices haven’t moved with other markets. It has led many to become cryptocurrency believers. The Bitcoin hash rate which reduces the number of coins available as a reward for miners by half is propelling many to anticipate a significant rise in prices.

At an all-time high, the current Bitcoin hash rate is at 136.2 EH/s. Bitcoin mining operations are set to expand after halving. New mining rigs are also expected. So much so that many influencers in the crypto space have analyzed this one way or the other. The UK’s Danny Scott put it this way.

2020: $5
2020: $436
2020: $8,625

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BTC Price Is Expected to Remain Bullish after New Bitcoin Hash Rate ATH

Other analysts have considered Bitcoin’s price dip. Analysts expect prices to remain stable. Even COVID-19 fears can’t break their confidence. Plan B is the cryptoanalyst that created the stock-to-flow model. He confirmed his confidence in Bitcoin prices. He has predicted prices to remain above $8600. Plan B also has indicated that Bitcoin prices may pick up as well.

Remember last month’s forecast that #bitcoin will stay above $8200? So far so good and .. the indicator just flipped to $8600 (March close). Risky with btc now at $8475, but I like to share it as out-of-sample test. Note this is totally different from S2F!https://t.co/1Kc36h6i03 pic.twitter.com/GG7mkaynwo

Altcoins Remain a Mixed Bag

Altcoins have been mixed. This is due to Bitcoin’s dominance of the crypto space. This is to be expected. A dominance of about 63% says everything. From the popular ones such as XRP (about $0.23), Monero (XMR, $67.03) to the little-known ones such as Fetch (FET, $0.034) and Pluton (PLU, $2.4), prices seem to be based on their specific use-case scenarios. Price variances indicate that Bitcoin will remain the king of the hill. This is expected to occur for some time.

Other markets are showing slight signs of recovery (especially the Asian ones). This raises further concerns by the crypto space about correlations between stock market prices and cryptocurrency markets.

Others are concerned with upcoming developments that will change Bitcoin’s core. Three plans within an upcoming soft fork will change just about everything concerning Bitcoin. Taproot Schemes, Tapscript Language and Schnorr Signatures will be one of the biggest developments since the last stable version of Bitcoin. This was also indicated by top crypto-analyst Lucas Nuzzi.

Bitcoin will soft-fork this year. It will be one of the most innovative additions to L1 thus far:

These are powerful foundational technologies that will bring novel smart contracts to Bitcoin’s base layer.

This will enable the implementation of long-expected changes. The Lightning Network is one such example. Then again, the lure of cheap power has also enabled miners to keep prices stable. Sources report that the State of Texas in the United States is attracting new Bitcoin mining operations.

Bitcoin Miners Get an Incentive

One would have thought that the two (oil and Bitcoin) being market competitors will have a face-off in such a situation. However, it seems that miners would prefer to work with what they have been given (cheap wind power). If the right cluster of Bitcoin miners were to take advantage of such opportunities, we may see an outbreak in prices apart from the influence of others in the cryptocurrency community.

For now, though, Bitcoin prices are going just right. For the moment that is. At the time of filing this report, Bitcoin (BTC) prices were at $8750.41. This indicates a 1.5% rise in the past 24 hours.

Christopher Haruna Hamman is a Freelance content developer, Crypto-Enthusiast and tech-savvy individual. He is also a Superstar Content Developer, Strategy Demigod, and Standup Guy.

Bitcoin Fundamentals: Mining Profitability Ratio & BTC Dominance

The PetaHashDollar ( PHD) metric is a robust way to quantifying mining profitability over short timeframe, while also broadly describing the progress in mining efficiency over longer timeframes. As outlined in PHD Ratio, Rock Bottom Mining & Peak Tether, the PHD metric is calculated by dividing Bitcoin’s Hash Rate ( Daily PetaHashes) by Daily Mining Earnings (USD) to include block reward & transaction fees.

In this article, the data sources on which this metric relies have been changed. The methodology and rationale for doing so are described in the article What is the Price of Bitcoin or its Market Cap… Exactly? The rest of the data sources concerning this metric have also been changed after analysing and comparing several sources. To summarise, all data is derived from:

  • Daily Market Price, Daily Transaction Fees (BTC): blockchain.info
  • Closing Daily Price: coinmarketcap.com
  • Hash Rate, Coin Supply: bitcoinvisuals.com

The results of the new methodology/data sources can be compared to the legacy ones in the graph below

Where Are We At?

Challenging the apparent boring aspect of price action in Bitcoin valuation (up until the time the article was drafted, not the case anymore), in just over 3 weeks, Bitcoin has set a few record values:

  • New All Time High Hash Rate: 27 August 2020
  • New All Time Low PHD: 7 October 2020
  • Mining Profitability Ratio (PHD adjusted for the “Mining Efficiency trend”) New Low Current Market Cycle: 9 September 2020

Mining Profitability Ratio

Regression analysis for exponential growth/decay have been unsuccessfully attempted in order to normalise the PHD metric, as to compensate for the substantial increases in efficiency and hash rate. This approach is to be furthered in a future analysis. For the purpose of this article, an eyeballed line of best fit has been derived from an exponential equation which best fits the entire span of the ASIC mining era:

The issue of using one equation for the entire timespan is that it departs too much from the more empirical progress in leaps and bounds (further exaggerated by market cycles). A sensible approach is dealing separately with the two visibly distinct areas of the graph:

  • A — the initial substantial increases in terms of efficiency & hashing rate
  • B — the tapering off in the magnitude of efficiency increase

The two equations best describing the baseline of these phases have been calculated and plotted below:

From PHD to Mining Profitability Ratio:

Discussion

For the Mining Profitability Ratio to touch baseline at the end of October, the price of Bitcoin would have to take a dive down to anywhere in between $5,385 and $4,406, assuming 10% increase or decrease from current hash rate respectively, and an average mining revenue of c. 1,842 BTC/day (transaction fees + block rewards)

This scenario would be consistent with a dive to $4,900–5,200 range of resistance and would likely have the effect of bouncing back BTC price, at least for a few months of upside, if not directly into a halving-anticipating bull market, and all-time highs. Outside a major technical/security flaw or some kind of black swan event, Bitcoin is very unlikely to just dive to $3000… at least not this year.

Continuing being boring at current price levels, or bellow 6K, as well as in the range above (7.5–10 K), are all healthy scenarios for Bitcoin in long term. This lull is allowing the mining operations enough time to recalibrate & refine their workings, both in terms of technical efficiency, as well as in maintaining their operation liquid.

A Bitcoin mining industry in rude health is one core fundamental which needs to be met before even considering a true bull market insight.

Low Bitcoin Dominance Fundamental:

The Flipside of the Altcoin / Scamcoin Argument

Another fundamental which is radically different from all previous market cycles is the low Bitcoin dominance. While this can appear, as it has thus far, as a huge impediment in sustaining any upwards momentum — funds immediately beginning to flow into the plethora of other projects — this state of affairs can also have a backlash effect… if given enough time.

All the printed securities, tokens, altcoins are hugely centralised and, while it cannot be said that the individuals & organisation running them are most ethical, their intelligence cannot be underestimated. While the newly attracted capital and “dumb money” had been pouring in these ventures, it is sensible to assume that a considerable portion of the funds generated in this manner — the printing press — had been, and will continue to be converted into Bitcoin for long term hodl.

This trend, in tandem with the capital required to be sieved out in order to prop up these schemes/ projects, sooner or later is bound to reach an equilibrium with the dumb/speculative capital willing to flow towards them. Once this point is reached, a BTC upwards momentum would have a significantly better chance to be sustained, thus preventing entirely the Altpocaliptic scenario, in which a major capitulation in Bitcoin would evaporate all other speculative capital, along with any willingness to be innovative, reckless or scheming in this space.

Conclusion

Bitcoin is fundamentally a different beast than in all previous market cycles; any reference or comparison to previous cycles must be treated with extra caution. Nothing is “off the table”, anything can go “off the charts”!

DISCLAIMER
This content is only to be taken as my personal OBSERVATION & OPINIONS, for the purpose to be further considered, debated or discarded. The analyses outlined are far from exhaustive, and ARE NOT & CANNOT serve as basis for any financial / investment / trading advice.

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