On-chain data shows that Bitcoin mining hash rate recently approached a new all-time high (ATH). Here’s what this could mean for BTC.
Bitcoin hashrate remained high despite the market decline
Mining hash rate refers to an indicator that tracks the total computing power that miners have currently connected to the Bitcoin network.
BTC is a blockchain that operates on a consensus mechanism called Proof of Work (PoW), so miners use their computing power to solve certain mathematical puzzles.
However, at no point in time does the total hash rate work in tandem. Instead, auditors compete against each other to be the first to solve the same problem, using their individual strengths. The reward for being first is the chance to add the next block to the network.
Although there is no collective BTC power, this does not mean that the overall hash rate has no consequences or benefit. For starters, the more computing power connected to the network, the better the security of BTC, since the new added power is decentralized enough.
The indicator also serves as a means of determining sentiment among miners. When the metric value rises, it means that new miners are joining the network and/or old miners are expanding their facilities. This trend indicates that miners believe that Bitcoin is a profitable venture.
On the other hand, the decline in hash rate indicates that some miners have decided to spin off their mining rigs, perhaps because they can no longer break even.
Now, here’s a chart from Blockchain.com showing the trend in Bitcoin hash rate over the past year:
The value of the metric appears to have been following an upwards trajectory in recent months | Source: Blockchain.com
As can be seen in the chart above, the Bitcoin mining hash rate set a new ATH in mid-December, but the indicator then saw a decline as the price of Bitcoin itself declined. Miners receive their rewards in Bitcoin, so the price of the cryptocurrency can be a deciding factor in their revenue.
Interestingly, while BTC has yet to show any sufficient recovery, the indicator has reversed course and is back near ATH. The fact that miners are not ready to back away from their farms yet suggests that they believe the network will eventually pay off.
As mentioned before, the total hashrate can have some real consequences on the blockchain. One of these results relates to network difficulty, a feature that controls how difficult it is for miners to find their task.
The BTC network wants to limit the amount of support miners receive over a certain period of time, so as miners increase their computing power, it responds by increasing the difficulty enough to keep the pace of miners the same as before.
Given that the mining hash rate is close to ATH, it is not surprising that the difficulty has also reached a new record high.
The trend in the mining difficulty over the past year | Source: Blockchain.com
Bitcoin price
At the time of writing, Bitcoin is trading around $96,600, up 1% over the past seven days.
Looks like the price of the coin has been following an upward trajectory recently | Source: BTCUSDT on TradingView
Featured image from Dall-E, Blockchain.com, chart from TradingView.com