CoinWarz shows that the bitcoin hash rate continues to explode, hitting a new all-time high of 270 PE/s on Monday before stabilizing around 220 PE/s today.
A rise in the bitcoin hash rate indicates that the number of miners on the network is increasing. This is often seen as a measure of miners’ growing confidence in BTC.
However, given the imminent threat of a recession, or even a crisis according to some, do miners know something that we do not?
The recession indicator in the red
Satoshi Nakamoto created bitcoin after the 2008 recession to deal with central bank depreciation of the currency and create an alternative to the banking system.
As an alternative to TradFi, some speculated that bitcoin would act as a lower risk asset. Yet recent data from Bloomberg shows that the correlation between Nasdaq and BTC has never been higher. This portends trouble for cryptocurrencies as stocks plunge during crises.
How likely is a recession? An often-used recession indicator is the yield curve. Generally, long-term debt instruments pay higher yields than short-term debt due to the increased risk of longer-term lending.
An inverted yield curve, where long-term debt yields less than short-term debt, is a strong indicator of an impending recession. Since 1955, a recession has followed all but one instance of an inverted yield curve.
At the end of March 2022, the spread between two and ten-year US government bonds narrowed to just 0.2%. If this trend continues, the yield curve will invert.
The economic outlook is negative with other factors at play, such as pending US interest rate hikes and the conflict in Ukraine.
However, the rise in the BTC hash rate suggests that miners expect the bitcoin price to rise, contrary to what is expected given the state of the macroeconomic landscape.
What is the relationship between the hash rate and the price of bitcoin?
The relationship between bitcoin’s hash rate and its price is a subject of debate.
Blockchain analyst Willy Woo says the price of bitcoin follows the hash rate. According to this reasoning, an increase in the hash rate, as it is now, will cause the price of bitcoin to rise.
However, others believe that hash rate follows price, as price is what drives miners to invest in expensive mining equipment.
Since November 2021, the price of bitcoin has been on a downward trend, but during this period the hash rate has been increasing. This relationship goes against the idea that the hash rate follows the price, because a fall in the price would cause the hash rate to fall, which it does not.
But then again, this trend also goes against the idea that price follows hash rate, because if that were the case, the increase in hash rate that we are currently seeing would correspond to an increase in the bitcoin price.
The only conclusion to draw for now is that the correlation between hash rate and price is weak.