The price of Bitcoin has dropped by nearly 60% this year and this has led to speculation that the digital currency is dying. In 2021, bitcoin once traded for $69,000, but dropped to around $17,700 in just over six months. Every time bitcoin faces declines, critics point to it being the end of the cryptocurrency. According to the website 99 Bitcoins, bitcoin has been declared dead at least 457 times, by various news sites as well as financial experts. The fall of the current digital currency has reignited new speculations about the demise of bitcoin. And that was evident in Google’s search trends. Searches for the keyword “Bitcoin died” increased in the last week, reaching the highest level on record. If the price of gold – or another commodity – dropped by 60% in six months, would you ask if gold died? Any interested party in the matter would consider gold fundamentals such as supply and demand, government policies and so on. If all factors were positive, the price drop would be a clear opportunity. So what are the most important Bitcoin fundamentals to keep in mind during downturns?
Hashrate – Bitcoin Mining Power
“Difficulty” in Bitcoin mining refers to the level of difficulty that miners must solve to find the hash that validates the blocks on the network. This level varies continuously, approximately once every two weeks, to adapt to changes in the hashrate (computing power) and always keep the average time needed to find the hashes and validate the blocks. These dynamics, strictly technical-operational, do not affect market prices, but are influenced by them. The lower the price of bitcoin, the more it reduces the profitability of mining activity, as miners are paid in bitcoin. When this happens, miners reduce power consumption by turning off some machines, reducing the hashrate. According to the website Blockchain.com, despite bitcoin’s decline, Bitcoin’s hash rate is on an uptrend and hit a record high on June 12, 2022. This means that the amount of computing power dedicated to supporting the Bitcoin network is approaching its all-time high and that it has never been more secure.
In other words, despite the drop, the bitcoin network continues to become stronger and safer.
Bitcoin’s supply is limited to 21 million coins. The total supply currently in circulation, however, is just over 19 million, with the remaining two million still to be mined. This makes Bitcoin the most difficult asset to buy because it is expensive to produce and there is a market cap. Bitcoin adoption is on the rise and more and more companies are looking to add some level of Bitcoin exposure to their balance sheets, as Tesla did. This is an indication that the offer is going to get tighter.
Governments around the world are softening their stance on digital assets and implementing regulatory frameworks to capitalize on this technology. While some governments, like El Salvador, are seeking large-scale adoption, others are simply regulating cryptocurrency exchanges and taxing cryptocurrency earnings, as is happening in Brazil. As more countries establish a regulatory framework for digital assets, more institutions and individuals will have the trust and frameworks to adopt Bitcoin and other cryptocurrencies.
The factors mentioned above have not changed reasonably negatively to support a massive price drop. There are other factors that affect the price of Bitcoin, such as correlation with stocks, that could explain the current price drop. But the fundamentals related to the Bitcoin network and its uses are improving over time. Clearly, the factors discussed above indicate that Bitcoin is not dead.