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Drops in Bitcoin’s hash rate have already correlated with significant BTC price corrections.
The hash rate is the sum of computational power used to verify transactions on the Bitcoin (BTC) blockchain. According to Cointelegraph, more power indicates increased network stability and interest in the profitability potential of Bitcoin mining.
Hash rate a function of Bitcoin’s value
An rise in hash rate is often correlated with the expectation of an increase in BTC price. Analysts discovered evidence that both the 2013 and 2016 bull periods were characterised by an improvement in mining complexity after a hash rate increase.
For example, the 70 percent gains in 2021 coincided with various acquisitions and major orders for mining equipment. However, distinguishing between cause and effect is almost impossible.
A few highlights include Argo Blockchain purchasing a 320-acre land pilot in Texas to extend operations, Bitfury’s U.S. mining division becoming public, and a Chinese lottery service acquiring the BTC.com mining pool.
However, there have been times of total dissonance, indicating that there is no clear connection between Bitcoin price and installed power of miners.
Despite the fact that it is difficult to calculate accurately, the seven-day average hash rate provides better results for detecting pattern shifts.
In terms of BTC price, 2017 was most likely an outlier, as Bitcoin entered a period of parabolic price growth. The hash rate had tripled to 6.8 TH/s by August. However, the hypothesis that the hash rate would forecast price was undermined when processing capacity abruptly fell by 25% with little discernible impact on the price.
In the other hand, Bitcoin’s 132 percent increase in the final two months of 2017 seems to have been mirrored a few months later by the hash rate, which more than doubled between December 2017 and March 2018.
The second half of 2018 and 2019 offer a more interesting dataset since BTC price saw more vigourous swings as well as times of deflation. Meanwhile, the hash rate more than doubled between April and November 2018, peaking at 54 TH/s. Surprisingly, this high occurred prior to BTC’s sharp correction to $4,000.
Both indices, on the other hand, bottomed out in mid-December 2018, and the first half of 2019 saw a coordinated movement between BTC price and hash rate.
The hash rate rose by 66 percent in the second half of 2019, while the price of bitcoin dropped by 38 percent. This period, the BTC price peaked at $10,200 in mid-February 2020, although the hash rate peaked just three weeks later.
Bitcoin hash rate and price all-time highs today
The most recent research indicates a strong connection between the two metrics as well. Furthermore, the hash rate of 166 TH per the second high on February 8 seems to have been repeated two weeks later when BTC peaked at $55,000.
As a result, there is without a doubt a clear link between hash rate and price, though there have been stretches of six months or more where mining capability continues to grow during BTC price stagnation.
The same can be said about unexpected hash rate fall, such as the one that happened in October 2020 and had little effect on the BTC price. As a result, such a metric for forecasting short-term market fluctuations remains untrustworthy. In other words, while being linked, hash rate and price patterns offer a slew of mixed signals that are sure to annoy any trader.
However, beyond the obvious long-term association, other considerations should be considered because they may have a more immediate effect on price. These include new mining equipment, legislation, seasonality, geography, and global oil price fluctuations.