Investigating Claims Regarding the Bitcoin Hash Rate: Fact vs. Fantasy

Mike Mish Shedlock

Analysts claim the bitcoin hash rate leads price. Let's investigate.

Price Follows Hash Rate Claim

Max and I agree on some things and disagree on others.

Place that Hash Rate Tweet into our bucket of disagreements as the following chart clearly demonstrates.

Data for the above chart from Blockchain Charts.

They have a huge error on the Blockchain download app in that it only provides one year of data no matter what timeframe one selects.

There are other issues with the charts they produce, but the above chart is accurate.

Here's the important fact: The hash rate of Bitcoin is on an exponential trend path (for now) with increasing volatility.

The price of Bitcoin does not remotely compare to the hash rate on any time frame that I can find after October of 2017 or so.

Here's an amusing article written May 26: PRICE WILL CATCH UP TO BITCOINS RECORD HASHRATE BY Q3: ANALYST.

> According to Aslam, bitcoin price will soon begin to reflect network growth. He predicts a convergence between fundamentals and market indices by the third quarter of 2018. If that is the case, then the number one crypto could be set for another moonshot.

Here's the chart Aslam noted.

The hash rate soared to 61.87 EH/s on August 27. Wow!

However, the price of Bitcoin on August 27 fell to $6719. UnWow!

We were supposed to see Bitcoin following the Hash Rate "by" the third quarter.

By the third quarter?

The third quarter is almost over. The fourth quarter starts in in a month.

The article states "It is proof that miners have full confidence in the crypto. Thus, they are willing to ignore the market indices by contributing more resources to mine bitcoin."

Here is a similar Tweet from another person.

Long Haul


The miners have confidence if they are holding Bitcoins rather than selling them for profit. Are they?

If miners sell the bitcoins they harvest (as I suspect) it actually shows a complete lack of faith the price is headed higher.

We will not have a true picture until the price of Bitcoin falls beyond maintenance costs or running a mining operation.

Curiously, fanatics have told me that the cost to mine Bitcoin "cannot" fall below the mining cost.

Wrong Again!

The price of Ethereum fell below mining costs, so clearly it can with Bitcoin.

And what would happen then?

It depends on how long miners are willing to lose money.

Ethereum vs Hash Rate

Data for the above chart from Etherscan.

I would have shown the same timeframe for Bitcoin (with a similar amusing look) but the Bitcoin download is messed up, only returning one year of data, as shown above.

Hash Rate Leads Price - Not

The charts I posted show the complete silliness of the idea, "hash rate leads the price".

People who claim to know where Bitcoin and other cryptos are going and in what timeframe are charlatans.

If you believe hash rate leads price, look again. The claim is nothing but hype to get you to buy or "hodl".

It's amazing how many Tweets, ReTweets, and nonsensical hype there is regarding easily disproved ideas.

Related Articles

April 25: Ethereum: Stick a Fork in ItThe price was $612 at the time.

June 14: SEC Paves Way for Ethereum Futures: Hooray!?

August 12: Crypto Bubble Unwind Images: Fast in Altcoins, Slower in BitcoinRipple, the number three cryptocurrency is down 89% from the top, Ethereum 76%, Bitcoin 67%.

I strongly believe Bitcoin is more likely to drop to $500 or lower than it is to get to the nonsensical price targets the fanatics place on it.

Mike "Mish" Shedlock

Comments (5)
No. 1-3

It certainly is far more logical to believe that the hash rate will adjust to the price, rather than the reverse. More accurately, we can assume that the hash rate will adjust, not to the actual price, but to the expected price. If a miner expects the price to be below his costs, he will stop his mining.

There is a also a certain amount of momentum involved. Once a mining operation is set up, costs have been sunk (leases signed, equipment purchased, leasehold improvements installed, such as bigger electrical service, and more AC ), and thus the tendency will be to continue to operate in the hope that prices recover, at least so long at the mining revenue exceeds his marginal costs (labor and electricity are the two primary variable costs). You see this on the ethereum chart. When prices fell, mining didn't stop, but mining expansion did stop.

The fact that mining activity continues shows that one of two things are true. Either miners expect prices to recover, or, alternatively, variable mining costs remain below revenue.


Two quick comments: the assertion that price follows hash rates is on a par with the assertion that the cost of gold mining will affect the price of gold - both are erroneous for essentially the same reason, namely that the existing stock of the currency/money-like instrument being produced is so large that it dwarfs the size of current annual production, which therefore won't have much of an impact on prices. Second, the cost of bitcoin mining has in fact declined markedly, as the large mining operations have for the most part been shifted to the places on earth offering the by far lowest power costs. Usually these operations are now located close to hydro or geothermal power generation and are entering into special agreements with the suppliers.


I agree with the thesis of the article, that hash rate and bitcoin price are not correlated.

It's worth noting that hash rate is not completely dependent on mining expenditure. New mining ASICs are continually being released which reduce the cost per hash. In other words, technological progress is one aspect of the increase in hashrate.

It's also worth noting that miners will factor in a predicted rise in the bitcoin price, so they will mine at a loss with the expectation that it will become a gain when the bitcoin price rises. If they wait until the bitcoin price increases before mining, it is likely that their hardware will at that time be less competitive, therefore they will get a greater return (in nominal bitcoin) if they mine now rather than later.

Miners also get another advantage in that they can obtain bitcoin without purchasing it, and they may prefer the privacy of this.

Global Economics