Bitcoin Hashrate Crisis: Correlation Between BTC Price and Hashrate

22 June 2021 | Updated: 22 June 2021

Since its creation in 2009, the Bitcoin meteoric price rally remains a controversial topic across mainstream media. While many publications disregard BTC as a highly volatile asset and label its price action random, some data sets assert that the price movements get influenced by well-known metrics.

According to data from Blockchain.com, a Reddit post, which superimposed BTC price history to identify trends, noted that there exists an uncanny correlation between Bitcoin’s hashrate and its price action.

Based on the chart, BTC prices typically “revert-to-the-mean” of hashrate data, with eleven clear instances of correlating with logarithmically calculated hashrate values. Using this metric for retail trading, the observations prove useful as buying BTC after the price crosses above the hashrate value results in a massive bull wave in four instances, followed by a gradual descent.

This correlation highlights BTC’s price action as anything but random, as many speculators and analysts like to state. Additionally, transaction values, price activity, technical analysis, and fundamental factors all influence the price action of BTC, much like traditional financial markets.

Hashrate and Its Relevance to the Bitcoin Network

For newbies, hashrate refers to the “buying power” of the Bitcoin network. It refers to the total combined computational power getting used at any particular moment to mine and process transactions on the Bitcoin network. Hashrate gets measured in units of hash/second, which represents the number of calculations the network processes every second.

A higher hashrate typically means more miners are on board, translating to better security for the network. Higher hashing rates safeguard a network against 51 percent attacks.

Meanwhile, Bitcoin’s hashrate is currently at its lowest point since November 2020, following ramped-up activities by the Chinese government to wean the country of decentralized cryptocurrency activities in general. According to Bitinfocharts, Bitcoin hashrate is down at 91.2 exahash per second (EH/s), a 46.7% drop from its six-week high at 171.4 EH/s.

The analytics firm also revealed that BTC mining profitability has dropped from its peak of $0.449 per day per terahash per second to $0.226.

Hashrate Drop Triggers Bitcoin Crash

Not surprisingly, the recent drop in hashrate has dealt a devastating blow to the price of BTC. At press time, the benchmark cryptocurrency trades at the $30,000 mark (-5% today).

That said, speculators expect displaced miners in China to find their way to other BTC mining hubs, especially Texas in North America. This movement is the most significant miners’ migration in Bitcoin history.

Once miners settle back into their previous rhythm, we can expect to see Bitcoin rise back to its recent highs.

 

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.