Impact of Changes in Hashrate on Bitcoin Price | Crypto Daily Digest Oct.23

TI Research

Bitcoin's hashrate has consistently set new record highs. But what's the real impact of this surging hashrate on Bitcoin's price?

Recent research by Blockware Intelligence provides an in-depth analysis of the relationship between hashrate and bitcoin price.

Hashrate can increase for various reasons, each of which has distinct implications for Bitcoin's price:

  1. New mining investments entering the network: During a bull market, these investments have the most significant impact on hashrate.
  2. Existing miners adding more machines: This contributes to hashrate growth but has a somewhat lesser impact.
  3. Previously unprofitable miners rejoining the network: Such miners, often using older ASICs, have only a marginal effect on hashrate.
  4. New, more powerful, and energy-efficient ASICs entering the market: This is the only cause of hashrate growth with a positive impact on Bitcoin's price.

1, 2, & 3 all have a negative impact on the price of Bitcoin. The increase in hashrate causes mining difficulty to rise, which in turn makes each miner slightly less profitable, resulting in a greater % of the mined Bitcoin getting sold to cover operating costs.

4 is the only cause of hashrate growth that actually has a positive impact on the price of bitcoin. The miners plugging in the latest-generation ASICs are not only increasing their revenue via the increase in hashrate, but they are lowering their operating expenses as the new-gen machines are using fewer watts to generate hashes; a double-boost to profit margins. Wider profit margins means a decrease in sell pressure on bitcoin.

Where are we today?

Hashrate has surged throughout 2023, hitting all-time highs frequently. The 14-day moving average currently sits around 430 EH/s. The cause for this increase in hashrate is most likely due to reason number 2 & 4. In 2022, hashrate grew significantly due to reason number 1; but most of that bull market investment has already been plugged in. What we are seeing now is miners increasing their fleet size & efficiency in preparation for the 2024 halving; getting into the most efficient ASICs possible in order to maximize their chance of survival.

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