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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…