Topic: Bitcoin price vs. hash rate? (Read 12111 times)

Now today the hash rate is much higher than ever in the past, the miners are doing there job pretty well and the network have become more stable. The confirmation time of transactions have reduced a lot in the last couple of years.
I will say don't worry about the hast rate at all because due to growing users/community of bitcoin more miners are in the field now, so hash rate will never going to decrease any more.

In my opinion, Bitcoin mining is one of the easiest way to earn coins but that will only be depending on the country you were living because some of the country has high electricity consumption. China is one of the country that has a less electricity bills that is why they are one of the highest contributor in the market.

One question is on my mind. If there has to be a price increase, should not be also come hashrate increase?

In depth: btc supply can be divided between existing bitcoins [where the supply (just for simplification) is very unelastic, because of hodling etc.] and freshly minted bitcoins [where the supply is very elastic, because miners are selling everything they mine for current price (again for simplification)].

So with those assumptions, where the price is defined by near zero profit of miners, the price should be rising max at the pace of hashrate surge. But the trick is the max. It would happen only in a world without technological innovation. If miners get more effective tools, then the price will surge less than hashrate.

So if those thoughts are correct, I think much more hashrate has to be added to allow btc price to grow. For example from halving we see only 25% rise of hashrate, but much of it if not all is swallowed by the technological advance.

So does bitcoin need surge in demand that will cause temporary high price that will be very attractive for miners and that will then cause the high hashrate and new equilibrium will come?

Well as bitcoin becomes more and more harder to mine means we need more has power for it which means the price of the bitcoin will go up even more, currently people joining pools and trying to mine bitcoin is not that profitable so i say if the hash rate is small the bitcoin price goes up

Probably yes, You revived an old thread but surely someone will have a link updated or maybe you could try blockchain.info  --->charts.  

Interesting read, is there a price vs hashrate updated chart?

In a sense yes there is a correlation the hash rate hasn't dropped though in a long time but it would probally slow down significantly in terms of growth
Depends on what gen your on as well but the hashrate has gone up 650 X since last year according to the coindesk report
http://www.coindesk.com/state-of-bitcoin-q2-2014-report-expanding-bitcoin-economy/

What will also be interesting will be to see what happens transaction fees become significant relative to mining rewards. The technology cap is interesting cause I wonder where that  is? Is it at 28nm or 22 or 16?

Cost of mining equipment has been keep going down for while. It seems we have finally hit a technology cap in term of hash/cost and hash/watt.

How events will be played out in the coming months will be interesting to watch for by stander.

Spend some more time around here, and you'll slowly start to realize that this just isn't true.

It's almost completely parallel to the old gold rush adage that it's better to sell the shovels than to mine the gold. That's essentially what you described above. But it has practically zero effect on market price.

The topic of coins "hoarded" by miners indefinitely...sure, that does play an indirect role on the market price. But the whole "price vs. hash rate" discussions here are typically way off the mark.

While the above is all true, it does not take into account that the market for mining gear is a significant one for the use of bit coins. So to the extent that that market is influenced by the hash rate so to will the bitcoin price. Most people understand that the bitcoin supply is not affected by the hash rate.

I made an updated chart today (not the best I've ever done, but I tried) because it didn't look like anyone had put one up showing data from the time after GOX shut down... Also, the timescale doesn't go back as far because pre-2012 data was almost worthless I think, as volume and market cap was pretty low still, as bitcoin hadn't been adopted very much.

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Edited to add:

I think it's interesting that there was a price bubble (as well as a difficulty surge) right after the first ASICs were coming onto the market, and then another bubble right around the time the second wave of more energy efficient, faster ASICs started to pour out.

I have tried to explain the same thing. From a market (price) point of view it does not matter if 100 Ghash/sec produces that 25 BTC/block or 100 Phash/s does it. They are the same 25 BTCs,
so, no, more hashrate does not mean higher price.
It is the opposite, if price goes up, more miner turns on their machinery!

It seems that there's no use in even trying to explain this to people on this forum.

Not to mention all of the "price will follow hashrate" comments. But please, yes - all of you should go buy more coins right now because the hashrate is continually rising.

This "mining causes price" is a basic fallacy.

Read https://en.bitcoin.it/wiki/Myths#Bitcoin_is_backed_by_processing_power

"The value of bitcoins are based on how much electricity and computing power it takes to mine them"

"- This statement is an attempt to apply to Bitcoin the labor theory of value, which is generally accepted as false. Just because something takes X resources to create does not mean that the resulting product will be worth X. It can be worth more, or less, depending on the utility thereof to its users.

In fact the causality is the reverse of that (this applies to the labor theory of value in general). The cost to mine bitcoins is based on how much they are worth. If bitcoins go up in value, more people will mine (because mining is profitable), thus difficulty will go up, thus the cost of mining will go up. The inverse happens if bitcoins go down in value. These effects balance out to cause mining to always cost an amount proportional to the value of bitcoins it produces. "

Also, check out the facts:
Transaction fees for miners are diminishing hard! https://blockchain.info/charts/transaction-fees?timespan=2year&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

Hashrate is ever increasing in the long run, and has no correlation of the market price (it can't be, a user don't care about how hard was it to make, labor not = value!!)
https://blockchain.info/charts/hash-rate?timespan=2year&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

Market price (aka capitalization)
https://blockchain.info/charts/market-cap?timespan=2year&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

So, no, IF you are not hodling your mined BTC, than mining is purely loosing money at today prices. If you bought the mining machine in BTC, than it will always be in the negative, because that way the price of BTC does not matter (you either hold BTC, or a machine making BTC, costing the same BTC = BTC/USD price is irrelevant.) The only way you make profit if you mined more BTC, than the cost of your machine IN BTC !!!
Obviously, that cannot happen, because it means the difficulty is lower, means more miners join, means less BTC return etc. It is a self reinforcing spiral!

The only time ASIC mining was profitable was when the first baches came out, and even that only mostly for the manufacturers themselves! (Or cloud hashing, which never going to make the money back for the renters...http://arielbarreiro.com.ar/en/bitcoin-cloud-hashing-review)

no matter the hashrate and diff, new coins minted per day remain the same in general.
people often think that supply is shorted with the rise of difficulty, but actualy its the same, just more spread out between miners.
more interesting thing to talk about is next halving, if that doesnt move the price way up, nothing will.

Such hashrate lately

Based on how many ASIC producers there are now, and how much some of them are starting to pump out this summer, I think we're on track for the 1 exahash region by the end of the year, or about 100x more than where we were Jan 1st 2014. Let's just say I'd be highly surprised if price has not followed and taken out the $1k level by year-end. Hashrate would be supportive of a 5 digit USD price sometime next year.

The most important aspect of the BTC price is that it sets the total mining rewards - the trend of mining reward to hash rate ends up being the more interesting trend than BTC price to hash rate. Right now the total mining rewards available per day are pretty huge and so will fund a lot of mining investments (this was written a couple of months ago):

http://hashingit.com/images/articles/20140403/hash-vs-reward.png

http://hashingit.com/analysis/11-the-rewards-for-a-bitcoin-miner

Over the long term, the long term price of BTC will affect the long term hashrate.

If over the long term the price of BTC will not cover the price of electricity then miners will stop mining.

If over the long term the price of BTC exceeds the cost of electricity (to run miners) then more people will be incentivized to purchase and run miners.   

Well, as the hashrate increases, also the difficulty does so that doesn't really matter.      But, as the price increases, it becomes more profitable to mine. The people who had turned off their miners, might turn them on again and that's one of the reasons why the hashrate will increase in that situation.

As in the hash rate goes higher and the price goes down?

Price and hash rate are related but sometimes, for example after a bubble peak, they can diverge.

Needs to be seen. The earlier peak of $1,242 was achieved as a result of extensive market manipulation by Mt Gox. I just hope that this time around it will be achieved through legitimate means.

Yep. If the price keeps climbing I might finally get that ant miner I have been eying.

Open use of Dollars was outlawed in Soviet USSR.   They were used anyway and to an extent, there was a market just in dollars and prices for them.    Governments are made up of people who then themselves might defy their own laws, dont worry about laws worry about if bitcoin is useful or not in future vs its competition

Actually it could happen all it takes is for a sovereign governments to collectively outlaw use after signing a treaty to that effect.

Never happen.

As hash rate increases,To mine one BTC will cost more (upgrade rig or take more time with the same rig), the price will increase as well. More people will buy and hold it.

As long as the cost to run a specific bitcoin miner is below the USD equivalent of bitcoin that the miner produces then the machines will continue to be used.

There are too many preorders for bitcoin miners for the hashrate grown to slow substantially.

Yes, but profitable to run =/= profitable to buy

At the current price and difficulty, assuming $0.15/kWhr electricity cost, you would need to be eating up almost 8 watt/GH/s not to beat the cost of electricity. Almost every ASIC ever made is still profitable to run. Even BFL 65nm units still return about 100% versus the cost of electricity.

Yes, many people start mining not for the current reward that should be negative or cero, but they hope in the future the price will increase, so they will make alo of ROI then..
if you were mining in june-july of 2013 you surely were not making roi at $100, but when the price skyrocketed you did it.

We're currently in another fase; the bitcoin has gained value again! Yeah!

Some people might have restarted mining now, as it's more profitable again.   

Avalons is already unprofitable.
TerraMiners will produce no profit if bought today. I'll show some calculations soon.

Beeetcoin is a bubble!

it will be interesting to watch what would happen if price drops to $100 or even less then that.

How many miners would stop, how many companies selling hash rates would bankrupt

it is smart to stop mining when the value of BTC flows is below your electricity cost because you can purchase bitcoins more cheaply than you can mine them and you are saving wear and tear on your gear. Of course if you get pleasure from mining which many people do then you  are going to keep on hashing.

Indeed. Many miners stop mining when they see a huge price drops which is in my opinion not too smart ... because soon or later they will start to mine again but - I am not a miner so I dunno what would I do in their pair of shoes

You should expect some carryover of continuing difficulty increase or relative stability for some time after a price collapse. Most Bitcoin hardware is pre-ordered in one way or another. Miners will be taking delivery of prepaid units for the rest of 2014 regardless of the BTC price. Even if the BTC price becomes abysmally low, miners will still continue to add their hardware to the network so long as it earns more than the cost of electricity (and maybe even if it earns less, if the miner is financially irrational).

However, we have seen some hashrate lost today, so there is some category of miner that is immediately sensitive to price.

Yes, a feedback mechanism like this will be happening and others too.

I think mining and expectations have a big part to play in the rise and ring-down patterns that keep cropping up in the price chart.

In markets it seems all dimensions that may be found are fully cross coupled:

some couplings are strong.
some much weaker.
all couplings carry some information.
many couplings take abstract paths (psychology).

It has always been assumed that the hash rate follows the price. I would suggest that there is a real but weaker effect the other way around. When the hash rate goes up relative to the price, individuals look to exit the mining game and are no longer consumers of new mining hardware. As the mining hardware market is probably a significant slice of bitcoin trade any drop would also drop demand for and the value of bitcoin. This effect may well increase the size of the ups and downs leading to higher total volatility.

Well there is a good side to that. If the number of USD in circulation rises exponentially, the exchange rate of FIAT/BTC will also rise exponentially and nothing can stop it. BTC in that sence is a good hedge vs retarded central bankers.

Haha yes, but the paraphrase is true only if one thinks Bitcoin is a Ponzi scheme.

The bad part about ponzi schemes is that there is no utility behind them, this makes their worth only proportional to their market growth and failure is inevitable because of this.

Bitcoin does offer quite the utility, it having solved the problem of a distributed trustless transaction system. It works well, sure it's a little raw at the moment, in the end users won't be seeing key strings etc. (unless they want to).

The irony is that Bitcoins nemesis: fiat and fractional banking IS a ponzi scheme as "new" money is created at a rate of 10:1 on new debts that are taken out by users Talk about untennable and destined to fail

are you sure its not the other way around?

the higher the diff, the bigger the price.
its like that with all coins.

"Miners have effect of price, because they are the great ponzi followers."

Less people mining, lower difficulty.

I think it is simple and great, self regulating system.

Difficult goes down. That's why this system is so good and self stabilizing.

No
Difficulty falls and new miners get to enjoy producing BTC.

I guess twin is assuming that those who buy with btc would have otherwise held btc for capital gain and when he says "profit" he means comparison between the long btc position and btc flows from mining.

I am not sure it is true that this has never happened. Anyone who buys hardware when btc is high before a fall and mines when hash rates are declining but has good enough hardware to mine more btc than it costs to pay for electricity will make a btc profit over and above a btc long position. This as happened at least once in bitcoin history (after the fall in prices from the first gox hack).

Granted it is a very specific set of circumstances.

Hashrate follows price as you say yes.

But hashrate will have some effect on future price.

It is in the interests of miners to have higher coin prices. Miners are not just black boxes, they are also people, enough people can and will influence a market price through different means. For example spreading optimism about bitcoin, holding out for higher price on exchange etc.

Higher hashrate (provided it remains distributed) increases the network security which can only add worth.

A larger network computing power might impress new users. New user thinking "45 petahashes! wow this bitcoin must be serious stuff".

What you wrote makes my brain hurt.

Rising BTC prices hedge risk and improve profits when investing in mining hardware.  It DOESN'T factor at all in if you are making/losing BTC directly by mining.

Your comments make NO sense.

"Investing" in mining hardware with FIAT or BTC is exactly the same thing except for any fee difference  in the transaction with one or the other.  If anyone says different they are fooling themselves.

If I have a $1000 today... I can buy BTC or I can buy a mining rig (whether that is in USD or BTC only matters in fees).  A mining rig is technically only profitable if it mines more BTC then its purchase price (in BTC) was.  Sure rising prices can mitigate the risk of mining by allowing a USD profit... but that profit would still be lower then if you just bought BTC thus just a hedge against loss.

People make BTC profit from mining all the time... if they didn't there wouldn't be pentahashes added almost daily.   Yes right now ASICs and business's are squeezing most profits out of mining but it does occur.


To the OP:  Hash probably lags price a bit since it is reactionary and takes time to order/setup mining rigs etc (and to take them down).  It also will be less and less of a factor as mined BTC become less and less a % of available coin.

Not really, efficency will continue to rise and if the price keeps his longterm upwards trend, then the money invested in hardware will not decline any time soon (if ever!)

I had to idea how much hashrate is related to price. But won't it change in future ?

When the market is up, everybody is optimistic. When the market is down, two distinct groups of people form: pessimists (everything goes to zero) and optimists (everything will skyrocket). Neither one can predict the future, but copes with the stress of the down market by reacting the way they always react when things are bad.

Personally, I'm very optimistic and I'm in for the long haul.

The people that keep mining when BTC rates are low are the ones who don't immediately sell their mined coins for USD right away. They HODL them because they believe in a bright future. Even if the current BTC rates are not profitable, they believe that some day in near future the prices will go significantly higher and what does not look a viable investment right now will look much more sensible at that time.

Thinking about it there really was no time when hashing was worth more than price since well it started trading in 2010 and before that whoever was mining was just paying electricity lol

• There is a corellation between hashrate and price.
  
• Hashrate has not any influence on bitcoin price. Hashrate always starts growing after price goes up (see the chart below).
  
• Bitcoin price has influence on hashrate. Hashrate is always growing up until mining cost hits bitcoin price.
  

Do not try to predict bitcoin price by watching its mining difficulty, it's useless.



(but if you don't care, welcome)

exactely. I don't think we are anywhere near a alltime high. Before 2018 we will hit 5 digits. All fundamental analysis says that.

Damn! I never knew that, but yes it makes sense.

If only a quick time-trip to 2010 was possible. Buy 1000 BTC and cold wallet them on an engraved stainless steel sheet, bury it and time travel back.

Well I suppose we can pretend we are time travelling back from 2018.

Scratch that!

It is BETTER to invest into hardware at HIGH prices COMPARED to low prices. Still not good though !!!

The labor theory of value has never been correct.

Indeed, you're right.   When the value of the BTC is low, you've to pay more BTC for a price in fiat.  For example: 1 BTC = $100.  You pay 1 BTC for an item of $100. If 1 BTC = $50, you pay 2 BTC for an item of $100.  So you've to earn 2 BTC by mining, instead of 1 to ROI, Lannister.

There should be a long, uninterrupted supply of miners.
Existing miners say nothing when they are losing money and brag endlessly about their gross income.  Bottom line, the perception non-miners have about mining is generally more positive than the reality, so people continue to enter with exaggerated expectations.
At this time I believe it's unrealistic to expect any significant hash rate drop and without an extreme external event, no chance it will approach 0.

Ha?

Quite the opposite is the case! If you buy with cheap BTC you pay much more BTC. But you don't earn more BTC because of that. It is good to invest into hardware at HIGH prices.!

In the long run miners will be able to make sufficient profit to cover there investment plus a risk premium. The hash rate will adjust to allow this to happen. However bitcoin mining can remain unprofitable with respect to buying new hardware for a long time. My prediction is that the new hardware market will die first and then there will be cheap secondhand hardware bought up by people mining for fun from people mining for profit. The hash rate will stay high until existing asic starts to wear out because unlike gpu's there is no other market for them.

It is really the cost of mining that should follow the price. Depends how accurately it follows. Miners also do speculate when they buy equipment.

I know that people have made a profit from investing into BTC hardware with FIAT. But at no time, where a Investment into mining hardware with BTC profitable in terms of USD.

(I don't count the time when BTC was 1200 USD and then some hardware was bought)

This is true but mining gives a continuous bitcoin flow to the miner. People can and have at various times made a bitcoin profit from mining. That is more bitcoins mined than bitcoins spent on hardware. Don't forget that bitcoin is worth more to the miner than the NPV of the investment. This is obvious otherwise no one would ever do it. If you want to truly understand the connection between price and hash rate you have to understand this point. Some people will mine at a loss.

there was NO SINGLE point in time, where buying hardware was better than buying coins. Bet this will not change ever

agreed, currently it's probably a better bet to buy coin than mining gear.

I guess so, the chart already covers quite a diverse range of dollar per hashrate.

But what if ASIC miners made the hash rate much cheaper?  Is this overlaid chart still valid?

Some of them mine because they believe that value will be much higher than now.

With bitcoin price at the $450 range the difficulty should be lower. Most miners are not making money in mining, and should quit.

Most people will think about the future. As soon as the Bitcoin hits the $900.- , $1000.- or even more, they've got a nice stack of Bitcoins. And then it's up to them whether they are going to sell any. (For me, I keep buying BTC and hashrate instead of selling any. I believe in the future).

With this difficulty level bitcoin price should be at $900 range. Most miners are not making money in mining.

That seems about right since part of the price of bitcoin aside from services and utility is the amount of electricity miners use to create the bitcoins and build up the network

Sorry dude, quick edit and now it's back...

The price function has more noise because it depends on ape brains, easily spooked and easily elated, but the system will rise relentlessly.

Resistance is FUTILE!

There seems to be a strong correlation between fiat price and hashrate.

Below I present you a composite graphic showing overlay of hashrate and price.

Both graphed on log scale so we can see the details over the whole time range.

Quite fitting!

So, according to that we will hit the 2000$ this year?

Let's see if this is going to happen. I would love to . But not yet, yet I keep trading my fiat for more BTC .

Edit; this post was in reaction to a post which just dissapeared with a graph.

That's how this works.
I remember when BTC price hits the record in 2013 wow so many new miners come in few weeks
So many new Bitcoin users

Agree. And then it goes back around from higher difficulty > higher price I guess.

Maybe if the developers of mining gear don't follow up, we will reach a point where mining isn't profitable anymore (regarding to the energy costs it take), and then it will stay at a stable level.
But this won't be the fact of the developers keep developing more efficient gear.

Higher price of bitcoins -> more profitable to mine -> more mining -> higher difficulty.

Higher difficulty -> higher each BTC cost of production -> higher BTC/USD price.
Therefore if the difficulty will continue rising, the price will catch up almost certainly!

btc price falling down but hash rate raise up ... 

btc will die if no one use it

The Bitcoin specification provides that if the mining becomes too difficult, and the time for confirmations gets too long, the difficulty is adjusted to become easier so that the average confirmation time will remain at 10 minutes.

Wll this is like impossible
This will NEVER happen you can only speculate.

But if all miners switch off -- there is NO coin. NO transaction. NO confirmation.

And the remaining miners' profit goes up. So no, it will not die.

the hashrate will drop significantly because only a few ppl mining it
and transaction confirmation i slooooww

Time tells no lies after all either they break even or they just keep running until it just becomes way to costly to do so even with giant price increases

They will hoard their coins until  they are well paid for them.

The thing is that most people that just now setup their mining machines bought them in the biggest upswing ever. Now that they received them, they barely cover the electricity cost but what else would they do with it?

i have always wondered what happens to bitcoin when everyone stops mining because its not worth it and the hash is to difficult? will bitcoin die then?

The cost of mining follows the bitcoin price. Hashrate per cost unit increases due to better equipment. Then there is a time lag to produce equipment. Then there is speculative errors on the hand of the miners.

As we know it has some connections but hash rate is growing and growing

About price we cannot say the same. But - it is growing according to the price from a last year.

Hi all,
Given the recent flurry of posts on how bitcoin's value will keep on dropping, how does one think about the ever-increasing bitcoin hash rate?
http://blockchain.info/charts/hash-rate
http://blockchain.info/charts/hash-rate?timespan=60days&showDataPoints=true&daysAverageString=1&show_header=true&scale=0&address=

Looks like miners, the core backers and long-term investors in bitcoin, still have plenty of optimism left? And the current market is just speculators' short-term panic?

-ElOmmy