- The Bitcoin hash rate is on a steady uptrend, hitting an all-time high during early June.
- Leading Wall Street reporter Max Keiser stated, “If you don’t understand price follows hash rate then you don’t understand Bitcoin.”
- Hash rate is still increasing despite transaction volume decline.
The Bitcoin hash rate hit an all-time high on June 4th, and whilst it has retreated slightly from these highs since, a new plateau could be on the horizon. Data from blockchain.info confirms that the Bitcoin network hash rate has been increasing throughout 2018, despite a decline in transaction volume and price.
Is Hash Rate a Signal for Price Movement?
Prominent reporter and Wall Street Trader – Max Keiser – announced on Twitter that “price follows hash rate.” Keiser went on to add that “this has been my mantra since Bitcoin was only worth $3.” If taken at face value, this could imply that we are in for a Bitcoin price spike. With the hash rate increasing, things are looking very promising for the Bitcoin huge price targets set by various figures within the crypto world.
However, it is highly plausible that Keiser is, in fact, referring to the value of the coin, not the price directly. A cryptocurrency with a higher hash rate is fundamentally more valuable than one with a lower hash rate.
A Delayed Reaction to the Holiday Period Price Boom?
There is evidence to support the theory that Bitcoin’s hash rate is climbing exponentially, constantly hitting new highs as a delayed reaction to the huge price growth we saw during late 2017. Seeing as the boards to build mining rigs take time to manufacture, dispatch, and setup, this could account for the recent spike. As the price of Bitcoin went up, the profitability of mining increased, so more people would – at least in principle – start mining operations.
The time it takes to go from ordering a mining rig to it going live is roughly four months. This is assuming that there was low stock on rigs when you placed your order – which is plausible for the crypto price boom late last year. This suggests that the hash rate is simply a lagging metric that will start to decline in the coming months following the price collapse of Bitcoin.
Validating Keiser’s Hash Rate Theory
Keiser’s theory that the hash rate predicts Bitcoin price performance has many flaws. The fact that it’s a delayed reaction implies that the price of Bitcoin was high, as a result there were many active miners. This will, in turn, reduce the reward of mining, and the oversupply of new miners will contribute to the reduction in the price of Bitcoin. Miners mostly run their rigs at break-even levels or for profit, so many will pause during the Bitcoin price slump, pushing the need and demand for miners up, thus increasing the reward and the price of Bitcoin.
While this doesn’t directly validate Keiser’s theory, it could well be the good news crypto investors around the globe have been waiting for.