Bitcoin hashrate hits all-time high. What does this mean for price?

Andrew Munro

Posted: 8 July 2019 2:28 pm News

Bitcoin's hashrate has tipped a new all-time high. But what does that have to do with price?

The Bitcoin network hashrate has hit its all-time high, climbing to an estimated 65,000 tera hashes per second (TH/s). Let's put that in perspective by looking at Bitcoin's entire lifespan.

Source: Blockchain.com

This means a few different things, depending on how you look at it.

1. Mining Bitcoin is more difficult than ever before.
2. Bitcoin's energy consumption can be estimated to be higher than ever before.
3. Mining Bitcoin is more expensive than ever before.
4. Bitcoin is more intrinsically valuable than ever before?

The first three are just facts. That last one is debatable.

Firstly, history clearly says that Bitcoin hashrate responds to prices rather than vice versa. When there's a disconnect between prices and hashrate to the extent that mining is unprofitable, we see hashrate fall rather than prices rise.

Source: Bitinfo charts

In that context, there's little reason to believe that the rising hashrate is the result of anything except the recent price rise or to believe that there's any reason a higher hashrate will really shore up the prices. It also highlights how a lack of organic demand for non-speculative purposes may hinder Bitcoin price growth.

The correlations between Bitcoin prices and hashrate clearly indicate that Bitcoin is being treated entirely as a speculative asset rather than a usable currency or commodity. It's nice to talk about a censorship-resistant global currency, but that's simply not what's driving Bitcoin prices. Its price appears to be exactly what you'd expect from a speculative asset instead of a currency.

On the other hand, history says higher Bitcoin prices are what funds future hashrate increases. With mining, you're talking about a lot of physical infrastructure with its own manufacturing supply chain, delivery times, pre-orders and so on. Miners get the new Bitcoin, and a large part of their earnings goes towards simply keeping up with the costs of their industry.

It's not impossible that this would edge prices higher as miners increasingly look to sell as high as possible in the face of rising mining costs.

So, with Bitcoin getting tougher to mine, there's little doubt that the next halving event, now less than a year away, is going to be an interesting one.

The halvings are when the amount of Bitcoin awarded to miners is cut in half. Given that transaction fees make up a negligible portion of each total block reward, the halving functionally has the effect of instantly cutting the mining reward in half.

Assuming the hashrates keep expanding to fill up all available space, so to speak, it's reasonable to expect the halving to instantly plunge a lot of high-end institutional miners into wild unprofitability. And as they get cut out of the industry, Bitcoin mining will increasingly centralise around the most efficient outfits.

It's far from clear that increasing hashrates are pushing up Bitcoin prices, although they might have a small buoying effect. But it's extremely clear that without ongoing price rises, the high hashrates are going to cause some interesting times for Bitcoin come the next halving.

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Disclosure: The author holds BNB and BTC at the time of writing.

Picture: Shutterstock