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Bitcoin (BTC) price fell below $ 9,000 again on Saturday, increasing the uncertainty surrounding future price estimates and reminding investors that the Coronavirus continues to impact markets around the world.
Daily performance of the cryptocurrency market. Source: Coin360
Interestingly, Bitcoin’s hash rate hit an all-time high on March 5 – 157 quintillion hashes per second – according to available data from Coin Dance. This increase has been the model since the beginning of this year.
The hash rate represents the computing power that Bitcoin miners must employ to confirm transactions on the blockchain. The increase in the hash rate represents greater security in the network, a trend that has consolidated in recent years, ultimately increasing the confidence of potential investors in Bitcoin.
Hash rate (quintillion hashes per second) from January 2016 to March 2020. Source: Bitinfocharts
The relationship between the hash rate and the future price of Bitcoin has been discussed as well as other events related to the miners, such as the upcoming Bitcoin halving which will see the reward in BTC per block created by miners halved.
The next halving event, likely to occur on May 20, 2020, raises further questions about the miners’ behavior that day and the relationship to price for the foreseeable future amid the rising hash rate trend.
What information does the 2016 halving provide for 2020?
Bitcoin’s latest halving event occurred on July 9, 2016, when the digital asset’s closing price fell from $ 666.52 to $ 650.96 on the day of the halving, a negative return of 2.36. %.
Bitcoin’s price ended up losing 7.5% that month, however, from July through the end of 2016, the price gained more than 35% to close the year at $ 963.74 on December 31st.
Bitcoin price (in USD) in July 2016. Source: Coinmarketcap.com
At the same time, the hash rate increased on the day of the halving to 1.5606 quintillion hashes per second from 1.4978 quintillion hashes per second on July 8, 2016. The profitability of miners per hash is naturally reduced as for get the same amount of BTC as before, miners will have to spend at least double the power absorbed from that day on.
Hash rate (quintillion hashes per second) in July 2016. Source: Bitinfocharts
Similar price action and hash rate evolution during the Bitcoin Cash fork
The Bitcoin Cash (BCH) fork on August 1, 2017 is another example of an event that has a direct impact on miners. As seen earlier in the 2016 halving event, Bitcoin’s return on that day was negative at -5.62%, with the price falling from $ 2,875.34 on July 31 to $ 2,718.26 on July 31. hard.
Bitcoin price in July and August 2017. Source: Coinmarketcap.com
Contrary to 2016, in the month of the event – in this case August – there was an excellent positive return with 49.2%. The rest of the year saw Bitcoin hit a record price of over $ 20,000, which is 159% higher than it was in August through the end of 2016.
When it comes to the hash rate, it increased from July 31 (6.30 quintillion hash / second) to August 1 (6.44 quintillion hash / second) – this was the opposite behavior to the evolution of the hash rate of the last halved event. However, until the end of the year, the positive trend of hash rate growth continued.
Hash Rate (quintillion hashes per second) during July and August 2017. Source: Bitinfocharts
Strong correlation between Bitcoin price and hash rate
Over the years, the correlation between Bitcoin’s price and hash rate has been very high, suggesting a relationship between the two variables. In 2016, these two variables were correlated at 86.2%, while in 2017 the relationship was even higher at 91.5%, the highest in the 2016-2020 period.
However, in 2018, a high opposite relationship was observed between the hash rate and the price of Bitcoin at negative 66.2%, being the only year with a negative correlation between these variables. Naturally, the positive relationship also manifested itself in 2019 with a correlation of 59.5%.
Correlation between Bitcoin’s price and its hash rate
A 100% correlation means that Bitcoin’s price and hash rate are moving completely in the same direction, while a -100% correlation means that they are inversely related. A 0% correlation means that the variables are not related in any way.
The data shows a significant negative relationship between hash rate and returns
When using regression models to determine the influence of the hash rate on the price of Bitcoin, insignificant conflicting results can be seen, meaning we cannot come to a conclusion on the behavior in individual years with a slight exception in 2019.
During 2019, there was a very small negative relationship between the hash rate and the price of Bitcoin, meaning that when the hash rate increased by 1%, the price of Bitcoin fell by 0.01. %.
A small positive during the last month of the halved event
During the month of July 2016, the month of the last halving event, there was a small, significant positive relationship between the hash rate and Bitcoin’s returns: When the hash rate increased by 1%, Bitcoin’s returns increased. by 0.018%, on the same line as positive cumulative return during that month and an upward trend in the hash rate.
Predictions for the next halving in 2020
Bitcoin will experience its next halving event in about 64 days, and the block reward for miners will be cut in half from 12.5 BTC to 6.25 BTC. It is commonly assumed that miners tend to sell before the halving event due to the decrease in rewards, which could hurt the price of Bitcoin just before the event.
As hash rates continue to hit record highs and its relationship to halving events mimics the continued upward trend, investors may face a short-term price decline, but focus on previous medium- and long-term horizons shows a recovery in the case of both related events.
Hash percentage data taken from bitinfocharts.com. The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your research when making a decision.
