The hash rate of the Bitcoin network (BTC), which represents the amount of computing power securing the blockchain protocol, has increased by around eight-fold since hitting its record high at $20,000 in 2017.
According to data provided by Blockchain, the largest cryptocurrency wallet service provider in the global market, the hash rate of bitcoin rose from 13 exahash to 98 exahash since December 2017.
Industry executives like Binance CEO Changpeng Zhao stated that the noticeable rise in hash rate indicates an increase in the number of miners investing in BTC, demonstrating confidence in the medium to long term growth of the dominant cryptocurrency.
“Hashrate increase means more miners are investing in BTC, they are bullish. You know what follows?” said CZ.
The increase in the hash rate of the Bitcoin network cannot solely be attributed to the growing confidence of miners.
Increased efficiency of mining equipment, the utilization of cheaper electricity, and other factors related to a decrease in costs for mining could have contributed to the exponential growth of hash rate.
While many factors have to be considered, analysts like Brian Kelly, the founder of BKCM, said that more miners have started to secure capital to fund the next 6 to 12 months of expenses to refrain from selling BTC to sustain operations.
Miners covering expenses in advance expecting the price of bitcoin to increase over the next 12 months could demonstrate their confidence in the medium to long term growth of the asset in anticipation of the block reward halving in mid-2020.
“I've talked to a lot of miners around the world, a lot of them have said they have sold enough bitcoin to get us through the next year or so and we are going to hoard bitcoin at this point in time and we are not going to sell it and the supply of bitcoin will get cut in half. Just real simple economics: lots of demand hitting little supply, price goes higher,” Kelly noted on CNBC’s Fast Money.
Anthony Pompliano, a cryptocurrency investor and a partner at Morgan Creek Digital, stated that the fundamentals of bitcoin are continuing to get stronger day by day, contributing to its growth.
However, some strategists have also expressed concerns over the possible drop in the hash rate of bitcoin post-halving as the mechanism drops the rate in which new BTC is mined and introduced to the market.
Historically, the hash rate of BTC has rebounded strongly from post-halving sell-offs and if the price of BTC rises prior to the halving as expected by many miners and analysts, it is likely to lessen the incentive of miners to slow down their operations after the halving occurs.
Other fundamental indicators of bitcoin including the number of active addresses, the number of total transactions, and transaction volume based on the U.S. dollar have been on an upward trend since early 2018, portraying relatively strong growth trend despite the 40 percent pullback in the price of bitcoin since July.
Disclaimer: The views expressed in this op-ed are solely those of the author and do not represent those of, nor should they be attributed to, CCN Markets.