Something that is always interesting is to gauge mining activity on Bitcoin, particularly in conjunction with what is happening in price and the broader market. After all, miners are the group that receives these newly minted bitcoins as the blockchain continues to grow. Receiving this income in the network’s native currency means that your actions can be indicative. Something remarkable is happening right now. The hash rate, which means the amount of computing power spent by the Bitcoin network – that is, the number of miners – is increasing. And it’s going up a lot. But at the same time, the price is falling. We are printing an all-time high after an all-time high hash rate. The price, however, turned down, before trading sideways in recent months around that $20,000 level. This is unusual. As the graph above shows, the last time we had a violent crash – May 2021 – the hash rate also dropped. This is natural – again, these miners’ revenue is Bitcoin, so why shouldn’t mining activity drop in response to a big price drop? Instead, the hash rate – and the network difficulty – remains high. Most people say this is a good thing. And they are right – the higher the hash rate, the more secure the network. And the more secure the network, the healthier Bitcoin is. But does that make sense? Let’s look at this from an economic perspective. Are miners not selling as much as they should? It seems that as we walk sideways after this accident, miners aren’t giving up. You can point to Ethereum’s move to proof-of-stake in September, attracting more miners to Bitcoin, but the dates don’t line up. Let’s check if miners are selling (chart via arcane research).
After the fall in summer, they really aren’t selling. But could that change soon? I recently wrote about how I believe we could be one event away from a nasty red fuse for Bitcoin. When looking at the underlying mining data, I get more tense. Again, this is far from correct – and more of a guess – but let’s check the last time we had a hash rate going up with a falling price. In mid-2018 this happened… and it was not good. Let’s zoom in on this time frame a bit – the chart above is a bit frenetic. Looking back over the 2018 window, we see exactly how this same hash rate played out despite the drop in price. And then look at what happened to the price at the end of 2018. So this is worrying. And there are people pointing this out as a bearish indicator. But as anyone following my analysis knows, I’m not exactly comfortable extrapolating past Bitcoin cycles to today. Yes, that was in 2018. But look at Bitcoin back then. Have you ever heard of it? Because a lot of them didn’t – it was still a niche asset, it still didn’t make a fuss in the traditional world. Not to mention the macro climate is totally different today, with us squarely in a new interest rate paradigm. A point that should never be forgotten when looking at past cycles: none of these cycles happened while we were in the midst of a broader bear market in the economy. But at the same time, it’s not just the fact that this has happened before. For me, I’m a little confused that the miners’ sell isn’t a little higher here, or why the hash rate is so aggressive. So in conclusion, this indicator is not making me rush to the SELL button. But I like to use mining data in conjunction with my broader analysis, and it’s a curious development. And as I wrote last week, I fear that this crab move around $20,000 could end with a red fuse. It’s a psychologically important level, and once we break hard below it, there’s not much resistance. There are a lot of variables in the broader market that can easily pull down, and Bitcoin hasn’t dropped much since the summer’s contagious wave – stocks have actually been worse. This underlying mining activity isn’t quelling those concerns, even if it doesn’t accentuate them.
Allan Barros, Founder of Uni-Metaverso, Announces US$200 Million Deal and Headquarters at Burj Khalifa in Dubai
The Brazilian Startup uni-metaverse creator of the first Web3 mobility app with Game-Fi/Social-Fi elements Crypto Drive creator of the “Drive-to-earn” concept and web3bank which unites digital banking, exchange and crypto wallet, attracts major investors from Dubai, a city known to be innovative and technological that is totally dedicated to being […]
