Bitcoin (BTC) recorded the biggest mining difficulty drop of around 28% on July 3, but one model suggests that the BTC price won’t bottom out until October. In a series of tweets on July 2, investment manager Timothy Peterson flagged the relationship between Bitcoin price and hash rate as controversial proof that the decline is not over.



Hash rate model

Bitcoin mining difficulty fell an estimated 27.94% at block height of 689,472 on Saturday, the largest in its history. As Cointelegraph previously explained, the decline was in response to the continued migration of miners from China and the subsequent loss of hash rate. For miners who are still working, the decline will be a form of profit growth. Difficulty automatically takes into account hash rate changes, making mining more attractive when it drops.

Migrating miners are not expected to fully return to their craft for several months. Then the difficulty will rise again as the hash rate increases – more competition and more power competing for the same prize. There is a classic approach among Bitcoin users that “price follows hash rate”. If this is true, a pattern illustrating the phenomenon paints a vivid picture of future price behavior.

The long road to the Bitcoin base

Peterson noted that the relationship between price and hash rate is “useful” in marking macro price peaks. The accompanying chart shows spikes in 2013 and 2017 that correspond to peaks held over the entire four-year halving cycle. 2021 looks similar, but since the May capitulation, the relationship has been moving towards 1, the point at which Bitcoin price needs to be fully “fixed”. “Based on the current trend in P(h), this bubble will end its collapse by October 31,” Peterson summed up.


“The rate includes any combination of a higher hash rate and a lower price. Therefore, the increased hash rate and stable price also dissolve the bubble.”

In other words, the reversal of the miners will likely prevent the recent massive price drop events, but the bulls may still have to wait longer than desirable to see a reversal at higher levels. An important caveat came from Peterson, who warned that “many things were wrong” with such a simple model and that he did not use it.

The model isn’t the only source of return for Bitcoin in the second half of the year. As Cointelegraph reported, analysts have compared 2021 to both previous years, seeing an initial local price peak, then a correction, and then a rise to the eventual top. After BTC/USD closed for the third month in a row, the stock-to-flow price pattern reflected the start of 2019 just after Bitcoin’s last major bear market trough.


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