In August, when Bitcoin was fighting a seemingly endless battle to hold the “Hoffman Line,” I wrote four articles about how, from an investor standpoint, the most important contributor to Bitcoin’s price momentum is its Hash Rate.
Despite Bitcoin’s price declining from $14,000 to $6,000, its Hash Rate quadrupled from the December 2017 top until the November 2018 SV attack. However, much of the hash increase was due to capital investment made last year, when the price was significantly rising. Thus, a lag effect that clearly, the market was discounting all year – explaining why price did not follow.
https://bitinfocharts.com/comparison/bitcoin-hashrate.html#1y
Like a slow-moving supertanker, the reduction in mining investment due to the year-long price decline finally started to kick in in November, just as the SV attack came along. Perhaps the Hoffman Line would have held without Faketoshi’s calculated, deliberate scheme to crash the price, but we’ll never know. Irrespective, it was successful – causing the price to plunge in line with Hash Rate…aided by SV temporarily commandeering a significant amount of Hash to fight its “war” with BCash.
https://twitter.com/Andy_Hoffman_CG/status/1080075069047468032
- Andy_Hoffman_CG
Since then, I have highlighted this relationship in three articles – in each case, concluding that once investors believe Bitcoin’s hash rate has bottomed, they will start buying it anew.
And while we’ll only know if the price bottom has indeed occurred in hindsight, the aforementioned supertanker analogy gives me increasing confidence it has – having bottomed, roughly speaking, at the same time as the Hash Rate. Which, for all the hullballoo, remains triple the year-ago level…and now, just 25% below the early November pre-SV high.
https://twitter.com/Andy_Hoffman_CG/status/1080072566469849088
- Andy_Hoffman_CG
Yes, breaking the Hoffman Line was a MAJOR psychological and technical negative – as institutional investment will not meaningfully return until it is recaptured. However, given that nothing is actually “wrong” with Bitcoin – the most incredibly powerful, globally disruptive technology since the internet itself; but to the contrary, is as “right” as ever before; it would seem that the downside potential is EXTREMELY limited if indeed its hash rate has bottomed…signaling a slow, but building momentum in the SHA256 “Hash War.”