Hash Rate And Dominance Are Why Bitcoin Prices Are About To Explode

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Hash Rate And Dominance Are Why Bitcoin Prices Are About To Explode

Bitcoin, It’s About To Have A Major Rally

Cryptocurrency market has been languishing over the last two months. The rally driven by Litecoin’s halvening petered out in mid-June and just never got is impetus back. That is, for most cryptocurrencies except Bitcoin. While Litecoin, Ethereum, and Ripple have been testing for support and bobbing along at two-month lows Bitcoin has been moving higher. Bitcoin has advanced about 30% over the last two weeks and is close to retesting the recent high. The indicators are bullish and consistent with continuation, as is price action, so there is a chance a new high will be set. A simple project of the past two-week’s rally puts the price of BTC/USD at $15,000. If BTC/USD were to hit $15,000 it would trigger such a massive inrush of money it would soon hit $20,000 and once that happens well, when that happens we can start talking about BTC $30K and BTC $50K.

There are many things driving the price of Bitcoin including the launch of Bakkt and the implication of SEC approved BTC trading on the outlook for a BTC ETF. Another driver of Bitcoin price is its own halvening which will occur next spring. The two most important however are Bitcoins market dominance and its hash rate. Bitcoin’s market dominance has been climbing steadily for weeks and just hit 68%. This is the highest level in 28 months and will soon be broken. The last time BTCs share of the cryptocurrency market was so high was just before the bull run of 2020. What it means for us is that the market is moving into Bitcoin. When a market moves into an asset it increases liquidity but decreases availability and that is a recipe for a rally.

Bitcoin’s hash rate is notable because it has been steadily rising all year. The hash rate has just hit a new all time high which means there are more miners using more mining equipment than ever before. What this means for us is two things. The first is that the market for Bitcoin and support for the Bitcoin market is growing and at record levels. The second this is that it is getting harder and harder to mine a Bitcoin. That means it’s getting more expensive to mine Bitcoin profitably and that too will have a positive impact on prices. So, what we have is a fundamentally driven rally that is drawing the support of the mining and cryptocurrency investment community. The increased attention of both investors and miners is having an impact on Bitcoin’s availability and value, and that ahead of a major decline in Bitcoin block reward, which in turn is fueling the rally. Sounds pretty bullish to me.

Looking at the weekly charts gets me really excited. BTC/USD price action is still wrestling with resistance but the indications are good it will be surpassed. Once we get a close above $12,000 price action may bob along between $12,000 and $14,000 for a time, possibly very short. The next target is $14,000 but, based on the magnitude of the YTD rally and the past two-week’s rally, a move to $15,000 is very, very likely.

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 2020, the hashrate was more than 40 EH/s, as compared with the 2020 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 2020. 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 2020, 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.

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$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 2020. 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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