Bitcoin (BTC) has yet again made good use of the support line in the $7,800 region to ward off piling up bearish pressure. It has done so for the fifth week in a row now, and with the price going back over $8,300, the possibility of a bullish reversal has begun looming on the horizon.
Amidst all these, the key metric of miner confidence is also presenting a bullish outlook for the asset in the medium to long term.
Hashrate, which underlines the level of mining activity on the Bitcoin network, is up 700% as compared to the corresponding figure in mid-Dec 2017 when BTC blasted its way up to the all-time-high evaluation of nearly $20k per BTC unit.
BTC Price vs. Hashrate: The Underlying Explanation
Hashrate is often deemed as a sort of yardstick to gauge miners’ confidence in Bitcoin’s ability to make upward strides. The exact nature of this correlation is disputed considering that while some believe BTC price follows the network hashrate, others are convinced that its the other way around.
In either case, the relation is likely to enter a positive feedback loop once it starts, rendering the origin of the loop somewhat irrelevant for all practical purposes for the time being.
For example, in BitInfoChart’s above graph, it appears as though the sentiment in the mining community closely followed that in the investing community around the period of May-June 2019. As the price started on an upward trajectory, more hash power followed.
The price continued to go surge in the following months, so did the hashrate– eventually reaching the all-time-high of almost 108.5 million TH/s earlier on Sep 26, as BeInCrypto has previously reported.
Even though such trends seem to be miners’ reaction to the market rather than being a long-term strategic move, they do serve as a handy tool for determining whether Bitcoin is heading towards a bear or bull run.
As BTC starts surging, mining becomes more profitable, prompting more miners to join the network. Eventually, they end up accumulating more Bitcoin than they would in a bearish market.
So now, with more Bitcoin at their disposal than usual, a significant chunk of these miners sell a part of their stash via exchanges. Among other perks, this also ensures a higher level of liquidity for the asset. Meanwhile, as more Bitcoin starts changing hands in the broader market, the price of the asset further rises. This, in turn, further encourages more mining activities on the network, leading to a further increase in the hashrate.
This positive feedback loop continues until an external factor causes the price to decline, thus breaking miners’ confidence in future profitability. The external factor could be anything ranging from market manipulations to a significant pushback against the asset class on the regulatory front (or anything in between).
Huge Moves Ahead?
And that brings us back to the current state of the network. Despite being stuck in the $7.8k – $8.4 range for weeks, Bitcoin appears to be instilling enough confidence in miners to keep the hashrate floating around 100 million TH/s.
This has prompted many in the community to believe that an upward momentum from here in BTC price could spark yet another positive feedback loop, which then might lead to more liquidity and a further increase in price.
Note that these are all speculative predictions as of now. Feel free to weigh in with your own predictions about whether or not the current hashrate hints at a rally lurking ahead.
Images are courtesy of Blockchain.com, Shutterstock, BitInfoCharts.