• Francisco Hernandez

Bitcoin: Price, Hashrate, and Difficulty

Introduction


In this article I will be looking at the Bitcoin price, hashrate, and difficulty. I start off by reviewing the behavior of price, hashrate, and difficulty across the last three years. Then I will zoom in to the year-to-date (YTD) chart and examine the current environment. Difficulty is up two times from the previous all-time-high (ATH) and recently made an new ATH, hashrate is also up about two times and is approaching ATHs, while price is down since its ATH and is moving sideways. Sideways movement will likely continue for 4 to 6 months.


Price, hashrate, and difficulty since 2017


In 2017, the Bitcoin price (orange) soared to levels near ~$19,640.51 per coin, depending on the source. At that time, the block reward was 12.5 BTC per block. That translates to a payout equivalent to ~$245,506.38. This made mining quite lucrative. Price was only at this level for a few days, but price had been rising well into 2017 and making higher and higher highs until the peak in December of 2017. Even then, as price corrected and dropped, Bitcoin was still at a much higher price than pre-2017, essentially making it profitable in terms of difficulty (blue) until quarter three of 2018. This is when price met and crossed below hashrate and difficulty. Since then, price has been oscillating above and below both hashrate (yellow) and difficulty. Lastly, hashrate and difficulty have each nearly increased by ~2 times since the highs in August 2018 while price has only increased ~1.3 times.

Price, hashrate, and difficulty since January 1st, 2017 to today


Price, hashrate, and difficulty year-to-date


As can be seen in the graph above, price (orange) is currently below both hashrate (yellow) and difficulty (blue). This is the longest period that price has been below hashrate and difficulty since the 2018 all-time-high. In the chart below, I plotted the same three variables but on only from the start of the year until today. With price below the hashrate and difficulty, the effort put in is greater than the payout making mining less lucrative. Especially with difficulty at an all-time-high, more and more miners will go into low-power mode or shut down operations. Should this occur, then hashrate and difficulty should both drop and approach price as it did shortly after the last week of May, when hashrate nearly touched price. Difficulty took a couple weeks to adjust and then hashrate bounced back, leading difficulty to an all-time-high. Due to this it is likely that hashrate will drop.

Price, hashrate, and difficulty year-to-date


Conclusion


With hashrate and difficulty at levels near two times the previous all-time-high and price only up 1.3 times since that, something will need to give. Either price must increase to incentivize miners, hashrate and difficulty must drop below price to give miners a break, or each should continue sideways movement. Relatively speaking, if price is above hashrate and difficulty (as the were in they previous bull run) it would be good for miners. However, I do not expect price to reach levels like 2018 as compared to hashrate and difficulty. Whether price is $3,000 or $9,000, if price is above the hashrate and difficulty, that is good. I still expect sideways movement at least until October 2020 to January 2021. It seems that the last few cross overs (when price crosses above or below hashrate/difficulty) the duration before each cross was about 4 months. The last cross over was in September 2019. In March 2020, when price was approaching a cross over, we were hit with COVID-19. That would have been about a 6-month duration; we are now at 10 months. Give it another 4-6 months and we will have a clearer picture of what is going on with price, hashrate, and difficulty, especially once COVID-19 clears from the air.

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