Bitcoin’s price bottomed out at just over $3,500 in March thanks in part to the COVID-19 pandemic and the upcoming halving event in May that cuts down the amount of new Bitcoin being rewarded per block from 12.5 coins to just 6.25 coins. And yet, since that time, the price has done almost nothing but go up. As of the time of this writing, Bitcoin’s price is hovering around $7,000.
While it would be easy to suggest that the drop in price last month was due to the pandemic alone, obviously it wasn’t the only reason. The fact that investors were pricing and the impact of the upcoming halving event may also not be the only reason. Changes in the hash rate might also be part of that reason.
What Is a Hash Rate?
The hash rate of a blockchain network refers to the speed at which blocks of transactions can be grouped together, while cryptographic puzzles are solved to validate those transactions, and reorganized into hashes (or strings of characters that represent a specific transaction). If the hash rate is low, it means the network is moving through transactions slowly, and crypto miners are solving cryptographic puzzles at a great speed, meaning they have to wait longer for their reward.
Whenever a constituent has to wait longer to earn money, it makes sense their profit margin likely isn’t as high. Since March 21, the day that Bitcoin’s price suffered a steep drop, the hash rate has expanded and grown by 10%. That’s a fair amount of growth in a short amount of time!
How Does Hash Rate Impact The Price of Bitcoin?
Part of the reason the hash rate increased is because the difficulty of solving these cryptographic puzzles on the blockchain was lowered. The higher the number of hashes per second that can take place, the more implied power there is to push the network forward and validate transactions.
It makes sense then that the hash rate increasing would make the difficulty even lower still and allow miners to move quicker through validating transactions which makes their efforts more profitable again.
The implied difficulty of how long it takes to validate transactions fluctuates based on a variety of factors including how many transactions are going to the Bitcoin network at any given time, how many nodes are participating in validating those transactions, how much power they have to contribute to the network, and of course whatever is going on in the broader economy or with regard to the coronavirus pandemic.
So the reason the Bitcoin price is moving higher is because more transactions are being confirmed and the stability of the network is being proven once again. This difficulty is likely to change within a matter of days and the price will likely drop after this recent bull run.
Why Economic Uncertainty and COVID-19 Are Proving Bitcoin’s Value
The more important point to consider with everything surrounding Bitcoin in everything that’s happening in the world is that while governments are pumping out stimulus packages and grants to citizens in order to keep the economy afloat, governments ultimately expect that money to come back into the economy somehow.
The problem is it won’t all come back at same speed or with the same force. There will be gaps. There are people currently laid off of work who won’t get their jobs back when this is over, and there are debts to be accounted for that won’t necessarily be paid out, even with the trillions of dollars being granted to both corporations and individuals during this time.
Contrast that with the Bitcoin network that certainly has to deal with fluctuations, but also can’t be counterfeited or duplicated in times of uncertainty. Everything related to Bitcoin supply and demand moves algorithmically. While whales investing in the market can certainly manipulate the price, the long-term value of the blockchain is what will sustain Bitcoin and other digital currencies during these times. Years from now, this current dose of uncertainty might be what catapults Bitcoin adoption to a whole new level and allows digital currencies to continue to slowly take over the world even while some of the planets most astute investors and economists continue to ignore its value.