This recent surge is the result of, a semi-custodial wallet and exchange platform that is under scrutiny within parts of the Bitcoin community, finally upgrading its software - four years after Segwit became available. Segwit transactions segregate the signature data from bitcoin transactions, which effectively allows more transactions to be included within each block. One example of this is transaction batching, where exchanges combine many transactions into one, limiting their claim on Bitcoin block space and thus also their own transaction fees.Īnother example is Segwit adoption, which saw a large increase recently (figure 3). Logically, when more blocks are created, it means that there is more block space available to include transactions.īesides this actual (temporary) increase in available block space, the adoption of several Bitcoin technologies that optimize block space usage (so effectively, scaling) means that every bit of block space is also starting to be used more efficiently. After all, Bitcoin’s difficulty adjustment mechanism adjusts every 2,016 blocks (~two weeks), but if hash rate rises steeply throughout that period, Bitcoin block creation is like a runaway train. One implication of the rapidly rising hash rate during this recovery period is that many more blocks are being created than normally would be. This bullish crossover on the hash ribbon indicator is interpreted as a buy signal, as this type of hash rate recovery after miner capitulation has historically preceded subsequent price increases. Now that the hash rate is recovering, figure 2 shows that the 30-day moving average of Bitcoin’s hash rate (green) has crossed the 60-day moving average (blue) to the upside. Figure 1 displays the bitcoin price (black) and difficulty (green), as well as the 14-day moving average of its hash rate (red) and number of blocks mined (purple).Īfter the massive drop in Bitcoin’s hash rate during May and June, the hash ribbon indicator signaled severe miner capitulation. It is unknown to what extent this hash rate is miners that relocated from China or actual new miners, but it is a positive sign either way. Some feared a hostile takeover (a 51% attack) of the network by the Chinese government, which has not happened (yet?).Īfter reaching a low of 89 TH/s on July 9, 2021, the two-week moving average of Bitcoin’s hash rate has already recovered to 127 TH/s (+43%) since then, as Bitcoin’s difficulty needed to be increased three times in a row to account for the new hash rate. The other was the major crackdowns on bitcoin by the Chinese government, driving miners out of their country, potentially actually improving the geological distribution of bitcoin mining activity that was heavily concentrated in China up to that point. One was the El Salvador government making bitcoin a legal tender in their country, which is now set to go into effect next week (September 7, 2021). Two months ago, in COC #2 (July 1, 2021), we pointed out two important factors that needed a bit of time to settle, before potentially creating a favorable situation for Bitcoin from a fundamental perspective later this summer - which is now starting to unfold. After introducing several contributing factors, we discuss to what extent low on-chain activity is reflective of market demand for bitcoin (the asset) or whether monitoring HODLing behavior is actually more useful in the context of bitcoin’s value proposition. This fourth edition briefly reflects on the recovering hash rate and then takes a more in-depth look at the relatively low on-chain transfer activity on Bitcoin. Cycling On-Chain (COC) is a monthly column that uses on-chain and price-related data to better understand recent market movements and estimate where we are in bitcoin’s market cycle.
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