Fellow humans,
For someone like myself who has made millions of dollars trading bitcoin, the argument bitcoin is backed by nothing is meaningless. Just kidding, I haven’t made my first million yet, but the argument is still meaningless, because it’s untrue. Bitcoin, like any other sound money, is backed by energy exertion.
I’ve mentioned before in this blog, gold is such a solid form of money for three main reasons: 1) scarcity, 2) indestructibility, and 3) mining gold requires vast amounts of work (energy). Nothing good comes easy, which is why the US dollar and all other fiat currencies are not good. They are created too easily.
Bitcoin is scarce; the maximum supply is 21 million coins. Bitcoin is indestructible, an example below regarding China, also because Bitcoin is essentially information, and information cannot be destroyed. Like gold, bitcoin mining requires vast amounts of energy. Seems like sound money to me.
What is bitcoin hash rate? In simplest terms, it’s a number which represents the current amount of global bitcoin mining energy exertion. Bitcoin mining is different from gold mining, in which powerful computers must be connected to the bitcoin network, and operate around the clock to do complex mathematics.
Bitcoin hash rate is generally measured in exahashes per second (EH/s).
The more I understand Bitcoin, the more I realize the unimportance of price. The price is only a result of something more complex. Like I tell people regarding exercise; trust the process, and results will come. Bitcoin mining is like the exercise of the network. It’s consistent and gets stronger over time.
The black line represents price, and the orange line represents hash rate. You’ll notice two things: 1) mining appears to have fallen off a cliff in May 2021, because China banned mining. You’ll also notice a relatively quick recovery, and then new highs; and 2) hash rate has grown immensely since January 2020.
By December 2021, hash rate made a full recovery after the China ban, and then some, because much of China’s mining activity migrated to the United States. This is the indestructibility mentioned earlier. Hash rate was 105 EH/s in January 2020, and this month it peaked at 410 EH/s. Immense, right?
Mining is one of the top fundamentals of the network. It’s like watching someone exercise consistently for 3 years, you know something good is coming. Eventually, results surface, but it’s not apparent in the beginning. Like burning fat and building muscle, bitcoin’s price is a lagging indicator of fundamentals.
What’s the point of bitcoin mining? Three key purposes: 1) mint new coins, 2) build new blocks for the blockchain, and 3) secure the network from unwarranted changes. Regardless of the hash rate, bitcoin’s monetary policy remains unchanged. This is a key difference between gold and bitcoin mining.
When gold mining activity increases, the inflation rate increases too. Bitcoin mining activity has absolutely no impact on the inflation rate. As I’ve mentioned in the previous post, “the block reward will be cut in half around April (2024), and bitcoin’s inflation rate will decrease from 1.7 percent to 0.84 percent.”
Building new blocks and network security are not something I’ll explain today, because they’re not relevant in today’s message, except for the fact that hash rate is directly correlated with network security. Earlier this month when hash rate reached an all-time high, network security also reached an all-time high.
As hash rate increases over long periods of time, we can almost expect price to follow in a shocking way. Building mining infrastructure is a tedious process, similar to building data centers. However, similar to the 10 week period from December 2020 thru mid-February 2021, price can nearly triple within weeks.
Hash rate increased by 7.5 percent during the above timeframe, while price increased by 199 percent. Hash rate will likely never triple within 10 weeks, but the price can move without much restriction. I don’t always understand the market, but I’ve been involved long enough to keep my skin in the game.
The evidence for strengthening fundamentals of Bitcoin is solid. Momentum has been building for the price to explode once again. Although I don’t know exactly when or by how much, I’ve learned over the years to build and defend my position while waiting patiently for mainstream attention and hysteria.
Please share today’s post on social media or by text/email with your network.
Until next time,
Salvatore Norge
P.S. — Seasons change so fast. Summer will end soon, but I love autumn so I can’t complain about the chilly nights. Plus, who doesn’t like hoodie season?
“Keep falsehood and lies far from me; give me neither poverty nor riches, but give me only my daily bread. Otherwise, I may have too much and disown you and say, ‘Who is the Lord?’ Or I may become poor and steal, and so dishonor the name of my God.” -PROVERBS 30:8-9
I’m not very wise. Never financial advice. Do your research.
"...I’ve been involved long enough to keep my skin in the game." Great quote!