Is Bitcoin network computing power an accurate indicator to predict Bitcoin price?
Hashrate refers to all the computing power required to verify transactions on the Bitcoin blockchain. As previously reported by the media, more computing power indicates greater network security and interest in the profit potential of mining Bitcoin.
The increase in hashrate is often associated with the expectation for the rise of BTC price. Analysts found that during the bull market cycles of 2013 and 2016, the difficulty of mining increased after the hashrate increased.
For example, the 70% increase in 2021 happens to be related to multiple investments and large orders for mining equipment. However, it is almost impossible to prove causality.
There are also periods of absolute disharmony. Perhaps there is no direct relationship between the price of Bitcoin and the number of miners installed.
Although it cannot be accurately measured, the seven-day average hashrate produces better results, and you can see the trends in changes.
It is very likely that 2017 will be an exception in terms of BTC prices, as Bitcoin has entered a phase of parabolic price growth. By August, the hashrate also tripled to 6.8 TH/s. But when the computing power suddenly dropped by 25%, there was no obvious impact on the price. Thus, the theory that the hashrate can predict the price was eliminated.
On the other hand, Bitcoin skyrocketed by 132% in the last two months of 2017, which seems to be reflected in the computing power a few months later. This is because the hashrate increased more than double between December 2017 and March 2018.
The second half of 2018 and 2019 provide a more interesting data set because the BTC prices face stronger volatility and stagnation periods. At the same time, from April 2018 to November 2018, the hashrate doubled, reaching a peak of 54 TH/s. Strangely, this peak occurred before the BTC corrected sharply to US$4,000.
On the other hand, these two indicators both bottomed out in mid-December 2018, and in the first half of 2019, the BTC price and hashrate showed simultaneous changes.
In the second half of 2019, the both trends were completely opposite. The hashrate increased by 66%, while the price of BTC plummeted by 38%. This time, the BTC price reached a peak of US$10,200 in mid-February 2020, and the hashrate peaked after three weeks. Therefore, there is no doubt that there is a strong correlation between the two. Although the BTC price has stagnated, it will take six months or more for the mining capacity to expand. Other than Bitcoin, the price increase of NGK is also related to computing power. At present, the NGK’s official computing power has sold 8.8 million T, accounting for 44% of the sales. With the increase in computing power, the price of NGK tokens has also risen further. The current NGK price has risen to US$1.51, which means that the token is appreciating. With the further expansion of the computing power market in the future, the price of NGK will surely be on par with Bitcoin.