Bitcoin is flirting with all-time highs. That’s a move that may have been forecast by miners. Those include those residing in the CoinShares Valkyrie Bitcoin Miners ETF (WGMI ). In advance of the largest cryptocurrency’s recent resurgence, miners lifted hash rates. And that trend has continued in the first half of May.
That potentially signals that those companies believe there’s more near-term upside ahead for bitcoin. Put simply, the hash rate is the computational power expended by a miner to extract digital currencies on the proof-of-work blockchain. That’s the one on which bitcoin is mined.
Of course, when WGMI member firms up their computing power, their energy consumption (and costs) follow suit. That means it’s unlikely miners would take on the financial burden of higher hash rates if they didn’t anticipate higher bitcoin prices.
Speaking of Higher Bitcoin Prices…
As noted above, upping hash rates isn’t cheap for miners. But there are some encouraging signs on that front. A new report from J.P. Morgan indicates miners’ hash price. The hash price gauges the profitability of daily mining, which is up 13% in recent weeks.
“We estimate miners earned ~$50,100 in daily block reward revenue per EH/s over the first two weeks of the month, up 13% from last month and 3% year-over-year,” observed analysts Reginald Smith and Charles Pearce.
Overall, the hash rate is up 1.1% since April, a modest increase to be sure. But it’s one that likely wouldn’t be occurring if miners weren’t expecting bitcoin to appreciate over the nearterm. The aforementioned profitability is important because crimped margins can compel miners to sell some of their bitcoin supply to keep operations afloat.
“Miners earn rewards from two sources: block subsidies and transaction fees. With the latest halving in April cutting rewards to 3.125 BTC per block, fees have become more important. But with fees staying low and blocks often empty, miners are seeing shrinking margins,” according to Crypto News.
The scenario of miners selling bitcoin was seen in March. But it quickly reversed in April as prices rebounded. Should miners — including WGMI holdings — continue retaining their bitcoin rather than selling it on exchanges, it could add to the scarcity dynamic that has often facilitated higher prices.
As things stand today, issuers of spot bitcoin ETFs are already frequently buying more bitcoin on a daily basis than is being mined. And that’s compounding the issue of constrained supply. That could be one reason miners are lifting hash rates.
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