Last month on October 18th, Bitcoin’s hash rate hit an all-time high of over 162,200,000 Tera hashes per second. This ATH birngs forward again one of the most curious topics for me - namely how is BTC price versus hash rate correlation developing. If the price follows the hash rate, this suggests a continuation of this year’s BTC price rally and I will continue to HODL what I have in BTC - perhaps consider accumulating further.
While hashrate has reatreated somewhat since then to a 130 EH/s level, difficulty level is set to continue to grow:
Source - BTC.com - stats
Furthermore, difficulty level in BTC is mining is set to reach a new ATH in two weeks:
Since my last article on the topic, BTC price action has entered in a massive bull run and now everyone expects the price to conquer the 2017 ATH and continue to appreciate. Needless to say, I have been extremely happy as I have tried to seek and follow this correlation. I continue to believe that mining activity is a solid price predictor even if the time lag is not exactly clear. There are already close to ten years of history, however I have not been able to find a strong predictive model or model this correlation myself. However, this latest massive price run keeps me convinced and keeps me in the camp believing that eventually price follows the hash rate.
As it is generally known, the higher the hash rate, the healthier the bitcoin mining environment will stay. Even after the halving event in May 2020, a growing number of miners continue to add the most efficient mining hardware they can afford in order to compete with each other.
From my point of view, the hash rate and the difficulty level are interesting metrics to follow as they show that miners are investing in and deploying new equipment, possibly in anticipation of a rising BTC price.
One of the most prominent advocates of the ‘price follows hash’ theory, such as outspoken Bitcoin advocate and media personality, Max Keiser, believes this to be the case. He has claimed on numerous occasions that the price of bitcoin follows the hash rate.
If in time we find this is a robust theory and good predictive model, then I expect we would be in for wild run in the next few months. I found this chart to be extremely eye-opening:
Source: Woobull Charts
In conclusion, BTC hash rate and difficulty level developments are astonishing. I continue to follow and expect that price follows the hash. In the meantime, there are numerous other factors building confidence in expectations of continuing price run. After halving in May 2020 and with fewer Bitcoins being created daily, perhaps a Bitcoin supply shortage has been accumulating in markets and finally the halving effect has kicked in. Growing number of participants have been bidding for a significantly reduced supply available on exchanges. Additional factors like Paypal’s recent cryptocurrency integration and a weak US dollar are probably increasing demand to buy bitcoin in recent months and with miners selling less Bitcoin during this cycle, price growth has been accelerated. I will continue to HODL and accumulate.
