Bitcoin Realized Volatility Bear Market
Bitcoin,  Commentary

Bitcoin Hash Rate Hits Record as Realized Volatility Mimics 2018 Bear Market

A mixed bag of fundamentals presents a varied picture about the future of Bitcoin markets in the face of continued weak price action

Bitcoin fundamentals suggest that its 2020 lows are behind it — but one indicator is flashing alarmingly bearish as volatility fades from the market.

According to fresh data uploaded by monitoring resource Skew on July 6, Bitcoin’s realized volatility has hit its lowest levels since November 2018.

Realized volatility draws comparisons to Bitcoin’s $3,100 plunge

The 33-month low has conspicuous timing. November 2018 laid the final foundations for a dramatic sell-off in Bitcoin which took BTC/USD to $3,100 the following month. 

Realized volatility refers to historical volatility over varying periods. It looks at how much prices varied from the norm in a set period of time. The lows concern 10-day realized volatility, which now hovers at 20%. 

Describing the events which occurred the last time 20% appeared as a “great sell-off,” Skew added to existing concerns about the real strength of Bitcoin under current conditions.

Bitcoin Realized Volatility Bear Market
Bitcoin’s 10-day realized volatility has dropped to its lowest levels since just before its December 2018 sell-off (Photo: Skew)

As Modern Consensus previously reported, repeated testing of $9,000 support was only interrupted by Bitcoin tracking stocks higher as trading began this week.

With volume low and firm resistance remaining in place both below and immediately above $10,000, a major move for BTC/USD remains decidedly unlikely. All moves above five figures in 2020 have so far seen ultimate rejection.

The lack of volatility continued to worry traders despite Monday’s stocks-induced run to $9,200. For popular Twitter analyst Josh Rager, only a retest of either $9,200 or $8,900 could signal a return to livelier conditions.

“Hoping for volatility soon,” he summarized.

Hash rate and difficulty buoy Bitcoin bulls

Beyond price concerns, however, Bitcoin appears paradoxically healthy from a mining perspective. 

In a hint that miners have renewed their faith in Bitcoin’s long-term profitability, average network hashrate hit new all-time highs this week.

Hashrate is a rough estimation of how much computing power is being dedicated to securing the Bitcoin network. The higher the average, the more competition for block subsidies is implied.

As of July 6, according to data from wallet provider and analytics resource Blockchain, seven-day average hashrate was 123.4 quintillion hashes per second (EH/s).

Bitcoin Realized Volatility Bear Market
Bitcoin hash rate has hit a seven-day average record this week, fueling a bullish mining outlook (Photo: Blockchain)

In an old adage which remains popular among Bitcoin pundits, hashrate has traditionally formed a “buy” signal, spiking before price makes a similar move higher.

Supporting the bullish trajectory is Bitcoin network difficulty, a metric which offers a further insight into miner participation. 

Higher difficulty implies that more effort is required to validate the Bitcoin blockchain. Difficulty in fact adjusts automatically every two weeks to take changes in miner participation into account, and also allows Bitcoin to remain just as “hard” as money regardless of price action or other factors.

The most recent adjustment was a rare 0%, contrasting with the previous 15% increase which was the highest since early 2018. 

Current estimates suggest that the next adjustment will be 6.5%, continuing an upward trend which reinforces the impression that long-term interest in Bitcoin mining remains intact.

“I expect it to keep going up from here, maybe slightly less than the dark blue post-2016 line, at ~2-3X/yr,” PlanB, creator of the popular stock-to-flow Bitcoin price model, summarized on Twitter Monday.

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Anthony Bevan is a journalist focusing on disruptive finance and cryptocurrency, along with the changing face of the market as Bitcoin gains mainstream adoption. Journalists covering cryptocurrency for Modern Consensus May hold positions in some of the currencies they write about.