And this is where I begin to have a real problem with Bitcoin overall.
Either the network matters or it doesn’t. Either speed matters or it doesn’t.
If El Salvadore starts using volcanos to mine Bitcoin it’s apparently bullish according to maxis and the main influencers.
Yet When China shutdown 50% of BTC mining apparently it doesn’t matter at all.
Ok then, shutdown 99% of the network because clearly it doesn’t matter OR The reality is unless you are pumping increasingly mammoth amounts of energy into the bitcoin ecosystem it can’t grow. It’s as simple as Bitcoin is energy.
Here is the hash rate chart. Drop the hash rate back to 2015 level and guess what happens to price?
This isn’t a dig at you btw gib, you are a nice guy but The fact is with the hashrate crashed price will trend towards that level. It will take time to restore the hash rate and we won’t see any new high prices until that happens.
Its price that drives mining (and not the other way around). The reason for that is that the supply is fixed, regardless of how much energy is expended on mining.
So, if you take gold as an example, more mining WILL increase supply. However, if you take BTC, no matter how much mining energy used, the new supply created will remain the same.
If I could theoretically add 50% of new mining overnight, this would double hashrate, but would create zero upside in the price of BTC. (Indeed it might arguably even suppress the price, as existing miners might need to shut their now far less profitable operations, and/or sell off their accumulated BTC to help cover costs).
Its the price of BTC that determines how much energy is deployed to mine BTC (
not the other way around).
If BTC goes UP in price, the profit existing miners can make also GOES UP. Hence that leads to more miners being incentivised to mine and this continues until an equilibrium is reached and until total mining cost divided by value of BTC created becomes cost neutral.
Similarly, if the price of BTC goes down, those miners who cannot mine profitably close up shop, and hash rate then falls.
You are making the error in logic equivalent of saying that its puddles of water on the ground that cause it to rain, because when you see puddles its raining. There is a difference between CORRELATION, and CAUSE and EFFECT. So, yes, puddles on the ground do correlate with it having rained, but its the rain that caused the puddles (and not the other way around).
Read Satoshi's whitepaper where he talks about mining incentives where he writes that its the value of BTC created as a reward from mining that:
"adds an incentive for nodes to support the network, and provides a way to initially distribute coins into circulation, since there is no central authority to issue them. The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation. In our case, it is CPU time and electricity that is expended."
To me the seems entirely obvious but it seems its actually quite common misunderstanding.
Below is a well researched paper on the topic by economists Dean Fantazzini and Nikita Kolodin titled "Does the Hashrate Affect the Bitcoin Price?"
They state:
"There is a long-lived perception that the bitcoin price and the hashrate (i.e., the number of computations done by bitcoin miners) are connected. Some works in the financial literature went further and theorized that the movements of the hashrate are useful in predicting the bitcoin price.
And conclude:
"The causality is
always unidirectional going from the bitcoin price to the hashrate (or its proxies), with lags ranging from one week up to six weeks later.
See a longer explanation here:
https://medium.com/coinshares/an-honest-explanation-of-price-hashrate-bitcoin-mining-network-dynamics-f820d6218bdf
