Impact of Changes in Hashrate on Bitcoin Price | Crypto Daily Digest Oct.23
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:
- New mining investments entering the network: During a bull market, these investments have the most significant impact on hashrate.
- Existing miners adding more machines: This contributes to hashrate growth but has a somewhat lesser impact.
- Previously unprofitable miners rejoining the network: Such miners, often using older ASICs, have only a marginal effect on hashrate.
- 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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