Bitcoin: mining grows, but not the price

Yesterday saw a new all-time high for Bitcoin mining, but it had no positive impact on the price. 

In fact, according to the seven-day moving daily averages of Bitcoin hashrate, yesterday marked the first time that 360 EH/s was approached. 

Taking individual hourly data, the peak was even above 440 EH/s, something that has never happened before in the past. 

Very high levels had already been recorded at the end of March, which then constituted new all-time highs, and curiously enough when Bitcoin’s price jumped above $30,000 about ten days ago, the hashrate had not reacted immediately. However, starting on 13 April, it began to rise again, eventually hitting a new all-time high yesterday

Bitcoin mining: the relationship between hashrate and price

There is often a tendency to believe that upward or downward movements in Bitcoin mining hashrate should somehow affect the price of BTC, and instead it is the other way around. 

That is, since the miners’ revenue in BTC is always more or less the same, and since the hashrate in fact is freely decided by them, when the market value of BTC rises generally the miners react by increasing the hashrate

Hashrate has a cost, which is significant, related primarily to the enormous amount of electricity that is consumed to mine Bitcoin

So during times when the market value of BTC falls, miners are inclined to cut costs by reducing hashrate, whereas if instead the price rises then miners can afford to invest a little more. 

It is worth remembering that mining is a competition in which those with the most hashrate gain the most, so miners are in fact driven by Bitcoin’s price fluctuations to increase or reduce their hashrate. 

The new records

By now, it has been since October 2022 that new records in Bitcoin hashrate have been continuously broken. 

Taking the seven-day moving daily averages as a reference, in October the record was set by exceeding 260 EH/s for the first time in history, but already in early November, 270 was also exceeded. 

With the collapse of prices due to the FTX bankruptcy in December, the hashrate dropped all the way below 230 EH/s, but then resumed its run with the new year, following the start of the small bull run of 2023 that would seem to be still ongoing. 

In January, it came close to 300 EH/s, while by February it had also climbed above 320. In March, the hashrate first rose above 330 EH/s, and then also above 350. 

Practically from the beginning of the year until yesterday’s record high, the hashrate of Bitcoin mining rose by almost 50%. 

It is worth noting that by contrast the price of BTC in the same period rose 83%, but it should be borne in mind that the hashrate not only reacts later than the price, but also does so very slowly. 

In fact, for example in November 2022 the price of BTC fell by 25%, while the hashrate between November and December only contracted by 15%. 

So at the end of 2022 the hashrate as a percentage fell less than the price of Bitcoin, and thus it also rose less in 2023. 

Bitcoin mining will become more difficult

The recent record hashrate, despite the falling BTC price, has brought Bitcoin’s block-time below 9 minutes. 

Block-time is the average time it takes to mine a new block on Bitcoin’s blockchain, and it is expected to always be around 10 minutes. Indeed, today the usual update of Bitcoin’s mining difficulty, expected every 15 days, took place, which increased by 1.7%. 

This wasn’t one of the largest increases ever, not least because in the meantime the hashrate had already returned to 355 EH/s simply because of the drop in the price of BTC. 

Be that as it may, the fact remains that the current level of difficulty is the highest ever, so as of today, mining Bitcoin is more difficult than it has ever been before. 

However, it is to be expected that miners might decide at this point, with the difficulty going up and the price going down, to shut down the older, less efficient machines, decreasing the hashrate. The price, however, will continue to go its way, regardless of the difficulty of the miners. 

It is worth mentioning that miners in such a situation might be forced to sell more BTC than usual, partly because the hashrate records suggest that they were mining them mainly to hold on to them in the hope of a further increase in market value. 

Therefore, it cannot be ruled out that the same miners in the next two weeks of very high difficulty may increase the selling pressure of Bitcoin in the market.

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