The Bitcoin hash rate - the amount of computing power used by the Bitcoin miners to generate new coins and secure the network - has been climbing rapidly this year.
Since June 14, the Bitcoin hash rate is up 60%. And it's nearly the double the rate of a year ago, when the hash rate hit its previous peak.
Bitcoin miners are working harder than ever. So what?
It's one of the strongest signals yet that price of Bitcoin is set to skyrocket within the next year to 18 months.
Let me explain...
Bitcoin Mining 101
The miners don't do what they do out of a sense of benevolence. Bitcoin mining is an expensive proposition.
The mining equipment, known as application-specific integrated circuits (ASICs), cost thousands of dollars each and are always being improved. And large mining operations buy these in bulk. So they need to spend tens of thousands - and often hundreds of thousands - of dollars on equipment at regular intervals.
Then they need a large facility to house that equipment. They need to pay staff to mind them. And of course, they need to pay for the electricity that keeps them running 24/7.
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The miners do all this for a chance to earn a "block reward" - a set amount of bitcoins awarded to the miner that "solves" a particular block. The current rate is 12.5 bitcoins per block.
Each miner wants as much hash power as possible. More hash power earns you more bitcoins.
When the Bitcoin price rose from $4,000 in March to over $12,000 in July, it incentivized the miners to invest in newer, more powerful ASICs in a bid to earn more bitcoins and thus more profit.
The Bitcoin hash rate started rising sharply in June, as it takes a few months for the miners to obtain and deploy new mining rigs.
So even as the Bitcoin price hovered around the $10,000 level in recent months, the hash rate did not level off. The miners were undeterred.
This week there was a sudden 30% drop in the hash rate followed by a steep drop in the price of Bitcoin. But the hash rate bounced back close to previous levels within 48 hours. And the Bitcoin price drop appears unrelated.
In any case, the Bitcoin hash rate tends to fluctuate a lot over short time intervals. What matters is the long-term trend...
Why the Bitcoin Hash Rate Will Keep Rising
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Over the past few months, the Bitcoin hash rate appeared to be accelerating even as the price was trading in a narrow range.
Demand for new mining equipment is as high as ever. According to Coindesk, the major ASIC manufacturers have sold out equipment for delivery through the end of the year. Miners are now placing preorders three months in advance.
When they order new equipment, the miners need to have confidence they'll earn enough in Bitcoin rewards to cover the cost in a reasonable time (after that, the rewards are mostly profit).
And a Bitcoin wild card just might explain why the miners are so eager to snap up and deploy new equipment.
Next May, the Bitcoin reward will be halved from 12.5 bitcoins to 6.25 bitcoins. That means the mining rewards (and the supply of new bitcoins) will also be halved.
With rewards set to shrink, the Bitcoin price will need to rise steeply over the next six to 12 months for the miners' vast investment in equipment to pay off.
The off-the-charts demand for ASICs now tells me the Bitcoin miners expect just such a rally.
And history says they would be right...
How Halving Events Have Pushed the Bitcoin Price Higher
We've had two previous reward "halving events." Each precipitated a massive rally in the price of Bitcoin.
The first halving occurred on Nov. 28, 2012. The Bitcoin price started its rally from about $100 to about $1,200 in October of 2013 - about 11 months later.
The second halving occurred July 9, 2016. The Bitcoin price was about $650. Within six months, BTC had reached $1,000. And within a year, the price of Bitcoin was $2,500, in the early stages of a rally that would take it to nearly $20,000.
Many crypto analysts have predicted a major rally that will take the Bitcoin price to $50,000 or $100,000 over the next year or so.
But the Bitcoin miners have put real money on it. Collectively, they've bet millions of dollars on the likelihood of a major rally as they stockpile ASICs.
I wouldn't bet against them.
Investing in Startups Is Like Buying Bitcoin for $1
You've heard the stories of "Bitcoin millionaires" - people who snapped up Bitcoin in its early years at absurdly low prices. Depending on when they got in, these folks could have purchased Bitcoin for as low as $200, $50, $10, $1, or, for the earliest investors, just pennies.
But the lesson is universal: The earlier you get in on an investment with great potential, the more likely it is you can enjoy a windfall.
The same goes for startup companies. Angel investors - those who get in on the ground floor, before a company goes public - historically have had the opportunity to land much larger gains than "regular" folks who had to wait for the initial public offering...
But now, regular investors like you do have that opportunity.
Shark Tank's Robert Herjavec is showing how easy it is for anyone to turn as little as $50 into what can be life-changing windfalls... all from investing in startups.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.