How cryptocurrency mining affects Bitcoin (BTC) rate?
Traders and investors resort to different ways to predict the value of cryptocurrency. It seems that one of them was always in sight, but so far it is almost never used.
There are many ways to predict the cryptocurrency rate, despite the huge market volatility. One of them may be associated with mining, which is an integral part of the life of Bitcoin. It is assumed that the last coin will be mined not earlier than 2140, which means this business will be relevant for a long time.
Experts from the world of blockchain industry make completely different hypotheses about the correlation of the rate of the first cryptocurrency and the complexity of its network. In May, analysts of the DataLight platform stated that they found a relationship between these indicators and named three hypotheses on this matter.
Experts wrote that in the first half of 2019 an increase in the complexity of the asset network was three times preceded by a sharp rise in cryptocurrency. However, this may be a coincidence.
According to one hypothesis, the complexity and hash rate of cryptocurrency increase after its price, as the market becomes more favorable and more and more miners enter it. Former trader, and now TV presenter Max Kaiser thinks otherwise. He is confident that the opposite is happening: first, there is an increase in production rates, and then the rate of Bitcoin is growing.
The most neutral theory says that there is a certain formula that can be calculated based on the history of changes in the complexity and cost of cryptocurrency. However, no one has invented it yet.
We found out from the specialists associated with mining, whether they see some pattern between changes in these parameters.
Viktor Pershikov, lead analyst at Cryptocorporation Mine, believes that there is an indirect relationship between the complexity of cryptocurrency mining and its value. The specialist is sure that the more stable the blockchain, the higher the complexity of the network, the more expensive the cryptocurrency.
“The increase in the complexity of cryptocurrency mining causes a limitation in the supply of an asset, which also raises the value of the market with supply-related demand. From this we can conclude that with the increasing complexity of mining there is an increase in the price of cryptocurrency, which we can observe on Bitcoin over the past few months, ”the expert explained.
Pershikov is sure that for this reason, developers impose restrictions on the extraction of coins, which concern the complexity of mining. The more popular the coin, the more miners interested in its mining: they connect the computing power to the network, thereby increasing its hashrate and, accordingly, the complexity of mining.
BitCluster co-founder Sergey Arestov shares a similar opinion. According to him, the growing complexity of the network pushes the rate up, as does an increase in the Bitcoin transaction fee.
“If the commission rises, it means that the number of transactions is growing, and in order not to stand in line, people are ready to pay more. A lot more. Personally, I had to send a transaction that cost $ 46, ”explained the specialist.
He stressed that the correlation is not necessary, although it often happens that with strong hashrate growth (when new equipment is put into operation), the rate of cryptocurrency can also increase. However, after a strong short-term price increase, then there is a significant drop in prices, so there is still no direct dependence of these indicators.
Real Bitcoin Price
The general director of the mining company Bitbaza, Daniel Zakomolkin, recalled that when at the end of last year the value of the coin dropped to $ 3,200, it did not fall lower precisely because this mark was the cost of cryptocurrency mining.
“It was the cost of mining one coin in October 2009 that was taken into account by the world’s first New Liberty Standart cryptotogram to form the market rate of this digital asset. Then, according to the exchange, the mining of one Bitcoin required expenses of 0.1 cents – this figure was taken as the basis for setting the cryptocurrency price, ”explained the mining company.
Zakomolkin clarified that Bitcoin rate depends on many different factors, but the fundamental level of the lower threshold still remains mining indicators. The expert noted that an indirect relationship between the value of an asset and the complexity of its production is always present, and, under certain market conditions, an increase or decrease in one of them causes movement in a similar direction in others.
More important factors
Founder of Lets Trip Ecosystem Mikhail Khudokormov also believes that a certain correlation between these indicators is present. However, the expert is confident that it is impossible to predict the course movement based only on the complexity of the network. The specialist recalled that, following the increase in the hashrate in September 2018 to high values, the collapse of the BTC rate followed.
“In fact, the course is influenced by a combination of certain factors and always requires a comprehensive analysis: the number of transactions in the MePule, halving, trading volumes, technical and fundamental factors, news, the number of new wallets,” Khudokormov explained.
Valery Petrov, Vice President of RACIB, named several factors that have a real impact on the cryptocurrency rate:
- the development of US trade wars with other export-oriented economies;
- the emergence of IEO as an alternative to ICO and a new driver of interest in cryptocurrencies;
- FATF recommendations as a factor in market ordering;
- access to the crypto market of world giants (Facebook, JP Morgan, etc.); and,
- development of the market steybloknov.
Petrov is sure that against this background, the influence of hashrate and mining indicators can be ignored. In the area of mining digital money, the widespread business with the possibility of earning on its new forms is more important, the expert stressed. An important indicator he called the introduction of a cheaper consensus mechanism, such as PoS and delegated PoS.
Practically all experts agreed that there is a definite correlation between the extraction of cryptocurrency and its price, but it is almost impossible to predict something at this stage. Judging by the experts, the most realistic prospect is the possibility of creating a certain formula that will help analyze the situation on the market in the future, but so far all this remains at the level of hypotheses and assumptions.