Bitcoin hash rate surges to all-time high, what does that mean?

Many analysts in the Bitcoin space expected a “death spiral” to occur following the block reward halving.

So, what is Bitcoin’s “death spiral”?

The term was coined by a professor who speculated in 2018 that BTC could fall to $0 due to a collapse of miners. According to the professor, a "death spiral" occurs when Bitcoin miners leave the network, causing transactions to be slow or nonexistent, rendering Bitcoin essentially worthless.

“As I said, once the price of Bitcoin drops below its mining cost, the incentive to mine is greatly reduced, pushing Bitcoin into a death spiral. That is, without mining activity backing up who owns the ledger of records, BTC becomes worthless,” is an excerpt from one of the earliest articles on the death spiral.

However, this “death spiral” never occurred, and new data suggests Bitcoin miners are more bullish than ever.

Bitcoin hash rate hits all-time high

According to crypto data firm TradeBlock, Bitcoin’s network hash rate has just hit a new all-time high. The company shared the following chart on July 7, showing that the seven-day moving average of hash rate is now over 124 exahash per second, which is more than double what it was a year ago.

Hash rate is a measure of the computing power used to secure transactions on a blockchain network. As described by Bitcoin.org:

“Hash rate is a measure of the processing power of the Bitcoin network…When the network reaches a hash rate of 10 Th/s, it means that 10 trillion calculations can be performed per second.”

Investors in the space reacted with optimism, with one trader slamming the death spiral narrative, asking where the death spiral was.

Their optimism is not unfounded: analysis shows that increases in Bitcoin mining activity correspond with increases in BTC’s price.

This theory is reinforced by the price model of digital asset manager and investor Charles Edwards. In 2019, he proposed a model that shows that the price of Bitcoin is always centered around energy consumption in joules.

Edwards recently found that Bitcoin is currently trading 27% below its energy value as the hash rate continues to grow. If the hash rate remains this high, BTC could gain traction over its energy value.

The catalyst behind the hash rate surge

There appear to be two catalysts behind Bitcoin’s continued hash rate surge:

China’s rainy season: Much of the Bitcoin network is powered by hydroelectric power stations in China’s river regions. Since it is currently the rainy season and flood season in China, the price of hydroelectricity is much cheaper now than at other times of the year, which creates an incentive for miners to turn on more machines.

Mining companies launch new ASIC machines: Mining companies continue to launch new ASIC equipment, making mining Bitcoin more profitable.

Considering that mining companies continue to launch new hardware and the rainy season continues, Bitcoin's hash rate may continue to hit new highs. (Baijiahao)