Wednesday, October 28, 2020

Bulls are ignoring BTC red alerts to focus on hashrate increase

The Takeaway:

As Bitcoin bearish rally is carried forward, the hash rate for the cryptocurrency has hit an all-time high. However, the bitcoin bulls have surfaced the crypto world with predictions of a price hike linked to the ascend in hash rate. This article covers the factors that support the autonomy of the hash rate hike from the bitcoin pricing.

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As Bitcoin continues to run in the crypto race with a downward trend, it seems that the hash rate for the digital coin is peaking; and although the investors are worried about the lower pricing, the ascending hash rate is apparently giving them hope. 

 

Hash rate is not a determinant of Bitcoin Price

The crypto patrons believe that Bitcoin’s falling pattern is just another passing fad and have assumed that the increase in its hash rate is bullish for BTC and its price, however, there is a conflicting road we would want you to walk on. If you think this assumption is apt and holds nothing doubtful, we would like to erase this doubt of yours. 

 

Hike in Hash rate does not imply a hike in prices

Firstly, you must know that cryptocurrency prices do not follow the hash rate; it is the hash rate that follows the trends of pricing. Hash rate is simply the amount of computing power that is applied in crypto mining. The advanced hash rate cannot guarantee that your bitcoin will hike in its prices. If we delve deeper, we will find that both aspects lie separately. 

In 2017, when Bitcoin achieved its all-time high price, the hash rate was comparatively lower to what it is today. Furthermore, though the price continued to be a rollercoaster, the hash rate was noted to soar. 

Parallelly, the miners can easily alter the hash rate according to the price dynamics. They would plunge the hash rate until the coin price reaches an equilibrium, instead of mining at a loss. Thus, stating that the hash rate can walk behind the price but not vice versa.

 

Bitcoin might sustain the bearish trend

Currently, the whales are linking hash rate to BTC pricing, which is entirely irrelevant. Being bullish about the price with the ascend in hash rate might be ridiculous as increasing the employment of power does not give value to the coin. Bitcoin is undoubtedly on the path of a downslide, and as speculated, it will continue to travel in the same direction for an extended duration. 

First and foremost is the impending launch of Bakkt that can prove to be more of a setback than any revolution in the crypto world. The platform, all set to proffer the bitcoin futures contract is supposed to be walking very close to the manipulations that can dip the bitcoin prices. Moreover, the US-China trade war is possibly going to see an end in the near future which can turn out to be way more hazardous for the bitcoin prices as investors can choose fiat currency over the digital coin. 

 

Hash rate: A red herring for network security

Besides this, people are also painting pictures of the belief that rising hash rate suggests that the network is more secure. On a serious note, you really need to abandon this thought. Any network is safe based on its security budget

The assumption that the hash rate reflects the security of bitcoin is a false lead. Bitcoin uses the Proof-of-Work algorithm, and its protection against the 51% attacks depends on the amount that miners’ expend. The higher spends the miners on hash power; the higher is the cost of 51% attack. Undoubtedly, the expenditure is vast as the mining of bitcoin is divided, and so is the capital to conduct an attack. Furthermore, Bitcoin is an ASIC-mined cryptocurrency. The use of this tech enhances the security budget, adding to the protection aspects of the network. 

 

Hash rate stands independent of the network’s security

Another myth that I must brush off is that hash rate is directly related to the security budget. No, it is not. Even if a network maintains a constant security budget, the hash rate can still vacillate.

So, precisely, the absolute hash rate is not a direct measure of bitcoin pricing and its security. 

The two arguments reiterated by bitcoin bulls, don’t hold any merit. However, we would recommend you to thoroughly analyze and research before you base your investments on hashrate trends- which work independently of the bitcoin price.

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Disclaimer: The article reflects the opinions of the author and is not representative of Chaintimes’ views.
The article does not offer any investment advice. User discretion is advised when investing in or trading with cryptocurrency. Extensive and diligent research should be carried out by the reader before making a decision.

Ramon AnderSon
Ramon AnderSon
Ramon is a senior market research analyst who is very passionate about bitcoin. He has a degree in Applied Science from Assumption College, Worcester.

2 Comments

  1. We are up 300% I wasnt aware this was a bear market , any traditional , political or other theories you hold you forget two things , physically settled bitcoin futures mean shorts would have to buy , to short and Samsung , LG and many other tutes , cos and trusts are now holding with a cannot sell mentaility. This is the first finite investment in history so throw everything you know about traditional metrics out the window , it could fall 60% or go up 1000% , and neither would amaze or phase me. Ease of use , and spend is happening , monarch samsung lg , debit and cc that work with crypto , and many more factors to consider . You have alternative motives imho

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