The observation of hashrate and mining activity are the thermometers to predict where the Bitcoin price is going
In the history of Bitcoin, we had 3 Halvings. When Bitcoin (BTC) mining was launched, the miners received 50 BTC when they successfully extracted a block. In 2012 this reward was reduced to 25 BTC, in 2016 it was reduced to 12.5 BTC, and now in 2020 it is 6.25 BTC, after the third reduction. In short, mining Bitcoin Rejoin is harder and more expensive.
Each Halving has definitely had an impact on the price, but never in the short term and this time it is not being different. Six months after the third Halving, which occurred in May, it has not yet been possible to measure the direct effects on the price of Bitcoin, resulting from the emission cut, creating a scarcity based on a mathematical concept that simulates the scarcity of gold. Why haven’t we seen the effects of Halving on the price of Bitcoin yet?
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After the first Halving, the price rose from $12 in November 2012 to a peak of $1,100 in November 2013 (12 months later). Similarly, the second Halving rose sharply 11 months later, from $650 in July 2016 to over $2,500 in May 2017. The most direct interpretation of this is that Halving introduces a restriction on supply, boosting demand, always between 200 days and 16 months.
The concept behind this phenomenon is known as Expansion Cycles, where the statistical model known as Stock-to-flow, a concept created by the analyst popularly known as PlanB. For PlanB, the next Expansion Cycle will take Bitcoin to US$ 55 thousand.
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The $55,000 PlanB forecast, based on Stock-to-Flow, is based on the relationship between scarcity, current supply and the amount of new emissions from an asset to determine the impact on price. This same model has registered the US$ 20 thousand peak reached by Bitcoin at the end of 2017, around one year after the previous Halving.
The increase of the hashrate as thermometer
Although miners receive less Bitcoins after each Halving, according to PlanB, the Bitcoin hashrate (the technical term used to measure the computational power of the Bitcoin logical network) has fired over 6,800%. Despite the growing fears of some that the miners might capitulate, they were constantly putting more computational power to maintain the network.
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The hashrate reached the impressive 150 exahashes after 11 years. By way of understanding, 1 exahash is equivalent to 1 million times 1 terahash. This computational power concentrated in Bitcoin mining, makes your network impregnable to any DDOS attack, for example. The Bitcoin network works without interruptions for 11 years without ever being paralyzed by any event.
What is the effect of this on the price? The price of Bitcoin is intrinsically related to the difficulty of its mining, that is, the more difficult it is to mine it, but expensive it becomes to extract it and in turn this cost tends to be passed on to the final price. In a simple equation between production, supply and demand.
Therefore, the higher the mining difficulty and the costs involved, the higher will be the price of Bitcoin, as recommended by PlanB’s stock-to-flow model.