Although Bitcoin is still down roughly 41.5% from the highs of 2019, the hashrate that secures the network has continued to climb, indicating long term investments into the crypto asset.
According to Crypto This, Bitcoin’s difficulty is expected to increase another 7% or 8% on Tuesday afternoon in the United States, which will bring Bitcoin’s internal measurement of the amount of computing power pointed at the network to somewhere around the 15 trillion mark. This indicates a roughly 167% increase from January 2019, according to data from BitInfoCharts.
Why Has the Hashrate Continued to Increase as the Price Declined?
Of course, the Bitcoin price is also up over the past year, rising from the $3,500 range a year ago to the $8,100 mark Monday. Obviously, a higher Bitcoin price should lead to an increase in the network hashrate, as it becomes more profitable for miners to bring more hardware online.
It should also be noted, however, that Bitcoin difficulty was declining at an historically rapid rate at the end of 2018, falling around a third from 7.4 trillion to 5.1 trillion over the course of just two months. There were even worries about a so-called “mining death spiral” event around this time, which were easily debunked.
In other words, Bitcoin’s hashrate had reached a low point near the end of 2018 and there was plenty of room for growth, especially after the price began to recover.
While the Bitcoin price eventually peaked in June 2019, the hashrate has continued to climb. When considering why this has happened, it’s important to remember that the mining industry works on a long-term investment horizon with high upfront costs in terms of hardware, long-term contracts for property and electricity rates, and other factors to consider. The hashrate follows long term trends rather than short term fluctuations around the Bitcoin price.
How Might the Halving Affect This Trend?
Of course, some may be wondering whether the upcoming halving, in which the number of new Bitcoin created roughly every ten minutes is cut in half, will have a negative impact on network hashrate. All things being equal, the answer is yes, a declining incentive to mine Bitcoin should also lower the hashrate over the long term.
But this does not necessarily mean there will be a sharp decline shortly after the halving takes place. In fact, the only two halvings that have already taken place in November 2012 and July 2016 were followed by massive increases in hashrate. That said, these increases in hashrate were likely due to the massive Bitcoin price bull runs that followed the halving events.
Hashrate follows price over the long term, so how the halving ends up affecting the hashrate will depend on how the halving affects the Bitcoin price. Old hardware can also come back online rather quickly in a situation where the price explodes upwards in a short period of time.
At this point, opinions are severely split on whether or not the upcoming halving is already priced into the Bitcoin market. However, the fact that hashrate has continued to rise in the face of falling Bitcoin prices is a bullish sign of long-term Bitcoin investments, such as the costs of bringing a large amount of new hashing power onto the network.