After what had felt like sustained, gradual increase in the price of bitcoin over the past few weeks, the price of Bitcoin plummeted last night down to $53,000 a coin in what was one of the largest drops in a month. With so many people invested in the crypto currency, what was the cause of this insane drop? Well it could well be caused by the fall in hash rate.
The price of bitcoin has historically followed the hash rate of miners. The correlation is a little loser than a strict 1:1 correlation as you can see from the image above, especially in early April where hash rate (Orange line) fell significantly but the price of bitcoin (grey line) didn’t. However, generally speaking the direction of bitcoin’s price does tend to follow it. Why is that?
It’s quite difficult to determine why that is. You would think that the fall in hash rate provides miners with the opportunity to mine more bitcoin and make more money however, it doesn’t seem to be working like that. It’s entirely possible that the fall in hash rate signals something a lot simpler, potentially a large sell off?
We do know that the Chinese authorities have been pushing to cut down on the carbon footprint of bitcoin miners over the past month or so. We also know that the Xinjiang province had a major blackout the other day too because of a “safety inspection” that resulted in major bitcoin miners in China having their hash rate plummet.
With much of the current mining capacity dropping due to miners going offline for good, It’s possible and plausible that the hash rate drop was followed by a liquidation. In which case, this is a perfect opportunity to buy miners and bitcoin itself because nothing fundamentally has changed. It definitely helps companies like Argo, who are more than ready to take advantage of this drop.
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