Looking at Bitcoin Mining vs Bitcoin Price

Looking at Bitcoin Mining vs Bitcoin Price

So I had a really nice discussion with my mentor, Gary from Data61, when we talked about Bitcoin volatility in which the price was cut to half within a week, and it is going to be a waste if I don’t write a piece about it.

It was started by his question wheter the price has impacted the miners. As we know, these miners are after huge profits for their mining efforts. Basically there are 2 sources of income: the new coins as an incentive given by the system and transaction fees paid by customers (bitcoin users sending transactions/data to the system). In order to mine, there is at least 1 variable cost to be paid by the miners: electricity. It is a common belief that those miners sell a fraction of their income (in bitcoin) to fiat currencies in order to pay the electricity bill. But then, what happen if the bitcoin price in the market is discounted up to 50%?

As the electricity cost is a variable cost, then if I am a miner, I might think about shutting down half of my mining machines in the facility I own. But the fact, the impact of the bitcoin price does not really impact the miners! Take a look at these charts I captured from blockchain.info/charts. All of the charts are set to show the last 60 days data.

First of all, here is the market price chart (in USD).

And here is the hashrate chart.

It is interesting that the miners are not affected by short term fluctuations. In the last 60 days, the total hashrate in the system has increased 50%, from 12k to 18k TH/s. Within the same timespan, the bitcoin price has also increased around 50% from USD 8k to 12k (regardless the spikes and the slopes along the way). When we look at the miners’ revenue, it confirms the similar pattern, where miners gain around 50% increase within 6 months.

What can we conclude about these charts? The mining game is a long game and it is not affected by the surge increase and decrease of bitcoin price (at least for 6 months period). It is understandable since large mining facilities require a proper preparation and massive investments). But then this creates even more questions than answers.

  • Does mining activity make an impact on the bitcoin price or the other way around? Can we predict the future bitcoin price by using the hashrate chart? I assume more hashrate coming since new ASIC machines (more powerful than the currently available machines) have been sold out in the next 3 months.
  • Do the miners know that the price will still increase? Could they play with the market (as they hold a huge amount of coins) so they can get a steady profits?

I guess these are interesting questions and we will need more efforts to answer them.

What do you think? Write your comments.

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