Charles Edwards from Capriole Investments is arguing that bitcoin's price is following its hash rate.
The top cryptocurrency turned higher from lows near $6,580 on Friday and hit a seven-week high above $8,400 early Wednesday.
Meanwhile, the hash rate, the computing power dedicated to validating blocks on the blockchain, rose above 115 exahashes per second (EH/s) on Jan. 2, ending a two-month consolidation and resuming the rise from the reading of 40 EH/s observed in May 2019.
The hash rate resumed the rise four days before bitcoin rallied. So it appears that in this case, the price followed the computing power.
Price and hash rate
Prominent observers like Binance CEO Changpeng Zhao and former Wall Street trader and journalist Max Keiser have said in the past that price follows hash rate.
"A rising hash rate means more miners are investing in BTC. They are bullish. You know what follows,” Zhao tweeted on Sept. 13.
Essentially, Zhao is treating hash rate as a barometer of miners’ confidence (similar to investor or consumer confidence in stock markets) in the bitcoin price rally.
However, betting on a bull run on the back of a rising hash rate can prove costly.
This is because miners, like stock market investors or consumers in an economy, can be irrational and over-exuberant. In the past, recessions and stock market crashes have been preceded by record readings on consumer/investor confidence gauges.
Also, the hash rate can rise due to improvement in the mining hardware and other factors. For instance, the hash rate surged in the third quarter of 2019 as the delayed onset of monsoon season in China's Sichuan province pushed the energy cost lower, allowing miners to operate at a full capacity.
And mining profitability is heavily influenced by gyrations in price.
A sustained drop in prices hurts profitability and forces small and marginal miners to scale back operations, leading to a reduction in the hash rate. On the other hand, a sustained rise in prices boosts profitability, attracting more mining power and leading to an uptick in the hash rate.
Thus, prices are more likely to follow the hash rate. The latter can stay high even in a bear market due to technological advancement and future price expectations.
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Seven-Week Highs
BTC: Price: $8,300 | Market cap: $151 billion | 24-Hr Volume: $30 billion
Short-term trend: Bullish
Bitcoin jumped to a seven-week high above $8,400 early Wednesday after Iran launched a retaliatory attack on U.S. bases in Iraq.
The price rise has invalidated the bearish lower-highs setup on the daily chart and strengthened the case for a test of resistance at $8,626 – the 61.8 percent Fibonacci retracement of the sell-off from $10,350 to $6,425.
Notably, the safe-haven narrative surrounding bitcoin has strengthened with the cryptocurrency gaining ground in tandem with gold since Friday.
So a drop below $8,000 cannot be ruled out as the risk sentiment has recovered.
The short-term outlook will remain bullish as long as prices hold above the support level of $7,570.
Long-term trend: Neutral The inverse head-and-shoulders breakout on the daily chart has confirmed seller exhaustion signaled by signaled by a hammer candle created in the seven days to Dec. 22 and last week's doji candle.
The long-term outlook, however, would turn bullish if and when the six-month falling channel is breached to the higher side. Currently, the channel resistance is located at $8,000.
A channel breakout could happen in the next few weeks as mining reward halving is due in May 2020. Indeed, few observers have argued that the impending supply cut has been priced in. That said, the market is still divided on that issue and a decent buying pressure could emerge ahead of the much-anticipated event.
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Looking Beyond The "Horizen" ZEN: Price: $8.38 | MCAP: $67.9 million | 24-Hr Volume: $1.5 million
Short-term trend: Cautiously bullish
ZEN is up 13 percent over a 24-hour period and is one of today's top performing digital assets, according to crypto data provider Messari.
Team updates set for Jan. 16 and Jan. 23 as well as a testing phase for its Sphere release slated for Jan. 31 could be contributing to the bullish sentiment.
The Daily RSI is trending bullish above 50 but is beginning to show signs of weakness while the awesome oscillator is printing a likely pullback to the upward sloping trend line (dotted line) near $6.61
Horizen is a privacy-oriented cryptocurrency with sidechains enabling anyone to build privacy-based applications within the ecosystem.
Long-term trend: Cautiously bullish
A backtest of former resistance at around $5.80 on Dec. 27 demonstrates a willingness from buyers to continue the upward momentum so long as the upper sloping trend line (dotted line) holds firm, above $6.61.
Below that level would abort the long-term bullish view as the trend of significant higher highs and higher lows breaks down. |
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| | | Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments. |
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