Bitcoin Prices Have Dropped This Year, But Hashrate Has Soared


According to a report by CoinJournal, the hashrate of the bitcoin network has soared in recent months, climbing by more than 100% in just 4 months. In June of 2018, the hashrate was more than 40 EH/s, as compared with the 2017 peak of about 13 EH/s. Over a similar period, though, the price of bitcoin has declined significantly, falling by about 60% from its highs at the end of 2017. What does the increase in hashrate signify, and is there a possible connection between this growth and the decline in bitcoin price over the same period?

Hashrate Growth

Put simply, the hashrate of the bitcoin network references the amount of computing power used by the network. The higher the hashrate, the faster a computer is able to complete operations necessary in the mining process, and the faster that mining can take place. For miners, a higher hashrate can be both a blessing and a curse, as hashrate growth means that mining companies must make continuous reinvestments in order to remain competitive.

Late in 2017, as bitcoin reached its highest values of all time, mining profitability likely increased as well. As price appreciation grows, it is often followed by deployment of added hashrate. However, this doesn’t necessarily happen at the same time. In fact, there is likely a delay between the initial increase in token value and the subsequent increase in hashrate. One reason for this is that the process of setting up and turning on new mining equipment takes time. This factor is exacerbated by other issues miners face, including searching for cheap electricity.

$4 Billion of New Mining Equipment

CoinJournal’s report suggests that about 2 million top-range ASIC units have come online for bitcoin mining since the end of 2017. Together, these units represent about $4 billion in new mining equipment used for generating BTC. Hashrate has effectively tripled each year during the last four years or so, while at the same time mining efficiency has increased thanks to technological and software advances. In this case, it could simply be that the mining industry has been slower to catch up with bitcoin prices than investors have.

Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.

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