Bitcoin – A drop in price but a soaring hash rate

By August 28, 2018 No Comments
Bitcoin Mining Market

According to a report by CoinJournal, Bitcoin’s hash rate has more than doubled in the last four months. Last month, the hash rate of the Bitcoin network was above 40 EH/s as compared with the peak that was observed last year which was about 13 EH/s. In the period where the hash rate has shot up, we have also seen a significant decline in Bitcoin’s price. It has fallen by 60% since the high that it achieved at the back end of 2017. What is the significance of the increase in hash rate and could there be a connection between this growth and the decrease in the price of Bitcoin over the same period of time?
Hashrate Growth
In simple terms, Bitcoin’s hash rate means the amount of computer power used by the Bitcoin network. As the hash rate increases, a computer can finish required operations in the mining process with greater speed and the pace at which the mining can take place increases. A higher hash rate is both good and bad for miners. Good because their rate of productivity increases but bad because an increase in hash rate means that mining companies must make continuous reinvestments to stay competitive.
As bitcoin reached it all time high towards the end of last year, the profitability of mining is likely to have shot up as well. An increase in price appreciation is likely to be followed by deployment and an increase in hash rate. This doesn’t, however, take place at the same time. There is usually a time lapse between the initial increase in coin value and the subsequent increase in hash rate. A chief cause of this is the fact that the process of setting up and turning on fresh mining equipment is a time consuming one. This is further exacerbated by other issues that miners face like searching for affordable electricity.
$4 Billion of New Mining Equipment
According to CoinJournal, over 2 million top-of-the-line circuits cation-specific integrated circuit (ASIC) units have come online for mining of bitcoin since the end of last year. This represents an investment of about $4 billion for fresh mining equipment used to generate bitcoin. The hash rate has basically gone up three times every year for the last four years. This consistent increase in hash rate has been accompanied by an increase in mining efficiency as a result of advances in technology and software. We can conclude that the mining industry has been slower to catch up with the price of bitcoin than investors.

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