- Bitcoin has been dependent on China for years now and due to the latest crackdown by the country, the crypto’s hash rate has hit its lowest in six and a half months.
- Miners have started relocating from China, with some moving to neighboring countries like Kazakhstan while others look at North America, with Texas the most favored state.
China has been the undisputed king of Bitcoin mining. At some point, about three-quarters of all BTC miners were said to be in the Asian country. However, China has turned against the sector and is stamping them out. Expectedly, this has affected the BTC hash rate which has taken a nosedive into its lowest level in close to seven months. Will this affect the price of the flagship crypto?
Bitcoin’s hash rate is the amount of computing and processing power being contributed to the BTC network by the miners. (You can learn about Bitcoin basics on our guide here.) The higher the hash rate, the more the resources being devoted to mining the top crypto.
Now, according to analytics by several platforms, the BTC hash rate is dropping drastically. The 7-day average hash rate for the past week stood at 129.1 million exahashes. This is a big drop from the 180.6 million all-time high that miners set in mid-May.
China is the biggest – if not the sole – culprit in the latest hash rate drop. The Asian country has been cracking down on crypto miners in recent weeks in earnest. China is seeking to reduce its carbon footprint and views BTC mining as a big contributor. As such, many provinces in China that were mining havens have been clamping down on the miners, with some even offering rewards for those who report the illicit miners.
The latest province in China to crack down on the miners was Yunnan. This is quite significant, especially given that Yunnan was the fourth-biggest province for miners in China.
Does hash rate have any correlation with Bitcoin price?
The drop in hash rate may not affect the average BTC user as the network will still be secure as it always has. However, in terms of speculation, it might be quite significant.
So, does Bitcoin’s hash rate correlate with its price?
Experts, both in economics and technology, generally agree that the two are correlated. However, the arguments arise in which among the two leads and which one follows.
Max Keiser, one of the most outspoken media personalities on BTC, is one of those who believe that BTC’s price follows its hash rate. In essence, Keiser believes that the higher the hash rate, the higher the price.
The founder of the Keiser report podcast once broke it down as:
Hashrate (more often than not) leads price. This is something not even Bitcoin’s most ardent supporters understand. It’s the heart of the incentive scheme. It’s Satoshi’s ability to hack humans to create Gold 2.0.
— Max Keiser (@maxkeiser) August 8, 2018
One expert who disagrees is Christopher Bendiksen, the head of research at crypto investment firm CoinShares. He believes that the hash rate follows the price. As such, the current drop should have no effect on the BTC price in the short term.
In a lengthy blog post a few years back, he disputed the notion that price follows hash rate, stating, “It doesn’t. And moreover, how could that possibly be the case?”
In fact, I can only think of one scenario where the hash rate could act as some sort of ‘floor’ for prices. This is in the unlikely event where miners are so well capitalized that they could refuse to sell their bitcoins at market prices, and cover their costs with liquid capital from their balance sheet while continuing to mine at a loss. You be the judge of that likelihood.