Topic: Understanding Bitcoin - Hashrate and Price (Read 127 times)

It has correlation but not too strong and some times price does not follow hash rate strongly in a same direction.

Hash rate is correlated with network difficulty and it is kind of input cost of Bitcoin miners. Miners must have profit to do their mining works so if the mining cost is increasing, price should follow it and move up. However, some times, miners will have to bear temporary loss if they believe it is good chance to mine Bitcoin and get more rewards when weak miners give up. I mean in bear market, you will see strong miners, strong mining farms stay operating and weak ones will leave this mining industry.

To say, if hash rate hits a new all time high today, price will hit it new all time high or increase a lot next few days, it is untrue.

Hashrate reflects growth of miners, nothing else. Price reflects market dynamics at any given time. Price more vaguely reflects overall growth but not precisely since of course the price bounces around between extremes, for example Bitcoin had much higher adoption at the beginning of this year at $16k than it did in 2017 at $20k, even though price was lower.

Hashrate doesn't reflect Bitcoin growth directly, but of course the more miners there are the higher the price needs to be for mining to be profitable so hashrate does rely on bitcoin growth to continue to grow. But mining hash rate often doesn't care at all about what part of the market cycle Bitcoin is in and it will continue growing even when Bitcoin price crashes into a bear market.

So these things are all loosely related, but definitely not tightly or directly related. Only thing that is directly related is hashrate and network strength if by that you mean security since that is exactly what the hashrate provides.

This is not true, the hashrate is the total of all the computational power used to mine blocks in the network, so if it is high, it means that more computational power is used in the network and this makes it safer and more secure.
BTC blocks are mined ~ 10 minutes on average, and it stays that way because of the mining difficulty adjustment, meaning that after every 2,016 mined blocks, if the hashrate was high, mining difficulty would increase and it would be more difficult to find a block, but if the hashrate was low, mining difficulty would reduce, making it easier to find blocks. This happens to keep the distance between blocks at 10 minutes on average.

The simple explanation for it might be, that when the hash rate is high there is lesser computation power to mine at the rate it was mining before. This means now more power is needed to mine the same amount of BTC but people are left with the same computation power and in order to meet the pace of high hash rate they have to increase their computation power.

Well, in case if they don't then the mining will be slower then before and the demand will increase while there will be a delay in the mining so thus there will be a temporary price hype due to the high hash rate.

Price can be an indicator of people's demand for Bitcoin, while hashrate increase/decrease can be an indicator of the profitability of Bitcoin.  I think there is a connection between the price of Bitcoin and the hashrate and they can signal the growth of the Bitcoin ecosystem.


It is a fact that the higher the hashrate the more secure the network is but I do not think that it can outweigh the market price as an indicator since the growth of Bitcoin hashrate is affected by the profitability of Bitcoin in the market thus, it also includes the market price of BTC in the equation.

First, you'd need to specify what exactly you mean by "growth". If you define it by increased number of users and/or transactions, than neither of those two is a solid indicator of growth.
But if I had to choose, I'd say the price is much more telling, as its growth is correlated with an increase in demand/interest in BTC. Hashrate alone could go up massively only to the introduction of a new-generation, more energy-efficient mining hardware, which alone is not really correlated to the growth of the network.

BTC's growth should not be measured by just one factor, many factors contribute to the growth and development of the BTC network. A higher hashrate would mean more security for the network, and lesser chance of a 51% attack, while a rise in the price of BTC may mean that there is more adoption, even though there are people who are only buying to make profits and sell immediately, without having any believe in the BTC network. Like i said, BTC's growth would be a combination of all the positives in the network and not just a single factor, and we can talk about a lot of the positives.

Hashrate grows because many miners are produced each year with better architecture and hash rate, which results in increased hash rate. There is also a huge competition between miners and for that reason mining becomes less and less profitable. There are moment when miners with cheap electricity and low taxes survive even when competition is huge and price is low but when there is a halving and reward divides by two, mining becomes unprofitable and they need price rise to make it more profitable again or enough people should shut down their miners to make it profitable others, e.g. natural selection should happen. To say shortly, bitcoin price increases after halving because miners get less reward and they can't continue profitable mining. Bitcoin's price is also determined by demand and supply. The higher the demand, the bigger the price because the final supply of bitcoins is only 21 million bitcoins and every 4 year, less and less bitcoin is mined. Also, many people lose access to their wallets and many bitcoin gets lost while demand is increasingly growing. There are many factors together that decide Bitcoin's price.

you can then look up a group of modern generation asics. look at their hardware cost. their individual hashrates
and doing some math find out the most efficient asic on the planet.
then do math on how many asics would it take to match the network hashrate

then take total hardware cost of all of those asics and divide it by 105000 blocks(2 year lifespan) and then divide by 6.25 to get a hardware cost per BTC of most efficient asic

.. then look at the power consumption and multiply that by the number of asics that match the network hashrate to get total power per hour
divide that by 6 then by 6.25 to get power consumption per btc..

then multiplying that by a reasonable electric cost of $0.04 to get the power cost per btc
add the hardware and power cost per btc and you get the most efficient reasonable mining cost.

if you want to find the premium give the electric consumption a premium of $0.50

then you will see roughly the 2 extremes of value and premium window edges that the market price will wiggle between..

where no one on the planet wants to sell below value... and everyone on planet can mine below premium so wont want/need to market buy above premium
..
back in 2021 this was tested because the premium then was about $75k and the ATH tapped out and stopped at $70k
back in 2022 this was tested because the value then was about $15k and the low tapped out and stopped at $17k
that said
back in 2021 the price never went near value and stayed higher then value so indirectly proves markets stay above value but didnt test the limit
back in 2022 the price never went near premium and stayed lower than premium so indirectly proves markets stay below premium but didnt test the limit

this window is a rough guide to value-premium. and its probably better to base it on the 6month/yearly average network hashrate rather then todays specific network hashrate to get a better indicator of the limits which miners account their costs and calculate their profitability of if they can mine or need to buy btc, or can mine but should or shouldnt sell btc

none of this predicts the market price exact position within the window of value premium. it just indicates the window edge the price sits within during a given period.

EG
2021 was $10k-$75k
2022 was $15k-$95k
2023 is roughly $25k-$140k
where the market price sits somewhere within those limits

it basically indicates that in Q3-Q4 of 2023 the chances of bitcoin crashing back to $17k was slim to none unless the hashrate crashed to make it proficatibly cheap for many btc sellers to want to sell below $25k in Q3-Q4 of 2023

Bitcoin hashrate was increasing in 2022 but it was a bear year for bitcoin as its price decreased from all-time-high in 2021 to $15500 in November 2022. But it is likely because miners believe that the price of bitcoin will increase and reach all-time-high.

The more the price of bitcoin increases, the more miners will make money and that will encourage them.

Bitcoin growth is signalled by adoption, but known through increasing marketcap and price.

Because of the hashrates, some people will prefer bitcoin because it has stronger and safer blockchain.

Three days ago, Bitcoin network hash rate was reported to have reached a new all-time high of over 540 exahashes per second. And on the side of its price, over the course of the some months, Bitcoin's price has also been increasing too. I want to better understand. Is Bitcoin's growth better signaled by its hashrate or price?Or does hashrate, reflecting network strength, outweigh the market-driven price as a reliable indicator?