Analysts at one of the biggest asset managers in crypto say one declining Bitcoin (BTC) metric may actually be a bullish signal.
In a new report from VanEck, Matthew Sigel, the firm’s head of digital asset research, and Patrick Bush, the firm’s senior investment analyst, say that the reduction in Bitcoin’s hash rate will likely result in higher prices in the coming months based on historic precedence.
The hash rate measures the processing power of the Bitcoin network as the speed at which a miner completes an operation. A higher hash rate indicates a stronger network and better security.
They note that Bitcoin’s “network hashing power, measured on a 30-day moving average, fell (-4%) over the past 30 days,” the largest decline since April 2024.
“Why a falling hash rate might be bullish: many Bitcoin enthusiasts worry about a sustained reduction in the hash rate because it could demonstrate that the mining industry is threatened as a going concern. Obviously, this would translate into people selling their BTC, thus worsening miner economics and therefore being reflexively bearish for Bitcoin price.
Some empirical evidence suggests drops in hash rate can be bullish for long-term holders. Looking at 90-day forward BTC returns versus 30-day past changes in Bitcoin hashing rate since 2014, we find that forward returns are more likely to be positive when Bitcoin hash rate is shrinking than when it is growing (65% versus 54%). At the same time, we find that average 180-day forward returns are higher by around 30 basis points (+20.5% versus 20.2%) when the Bitcoin hash rate is falling than when it is increasing.”
The analysts also say that the longer the hash rate shrinks the higher Bitcoin’s price tends to move months later, based on historic performance.
“Additionally, when hash rate compression persists over longer periods, positive forward returns tend to occur more often and with greater magnitude. Across the 346 days since 2014, when the 90-day hash rate growth was negative, 180-day forward BTC returns were positive (77%) of the time, with an average return of (+72%).
Outside of those days, 180-day forward BTC returns were positive (~61%) of the time and averaged (+48%). Thus, buying BTC when 90-day hash rate growth is negative, rather than at any time, has historically improved 180-day forward returns by (+2,400 bps).”
Bitcoin is trading for $86,960 at time of writing, down marginally on the day.
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