Meeting minutes revealed the looming spectre of monetary policy tightening, most notably higher than anticipated interest rate hikes.
Last week the Fed’s tone became hawkish and digital assets fell near unanimously. Meeting minutes revealed the looming spectre of monetary policy tightening, most notably higher than anticipated interest rate hikes, prompting losses in risk assets like crypto and equities. Bitcoin slid from $46k to below $40k for the first time since September 2022, before rebounding to $42.7k. This development comes against a backdrop of 40-year high inflation and, given that crypto is typically regarded as an inflation hedge, commentators suggest that if these measures are ineffective in dampening prices bitcoin could be set for a big boost.
Network difficulty continues to rise slowly - adjusted up to 24.4T over the weekend for an increase of 0.4% - but is yet to breach May 2022’s 25.0T all-time high. This pace reflects a stagnating network: despite a brief 1-day spell above 200 EH/s — a bitcoin first — hashrate has had no consistent growth since early December, in stark contrast to its meteoric recovery in the post-China era. One development that analysts point to is the recent internet blackout in Kazakhstan, one of the world’s top bitcoin mining contributors, sparked by civil unrest following a spike in energy prices. This story does not, however, fully explain hashrate’s change in pace and over the coming weeks we will see whether this is a momentary blip or a genuine departure from the trend.
If we are seeing a genuine slow-down in hashrate growth, the prospect of a flat-lining difficulty will prove a welcome relief to miners whilst bitcoin continues to trade well below all-time highs and hash price slips to levels last seen mid-last year. Maybe this is good news, at least in the long-run. A recent note published by investment bank Jefferies highlights how mining profits attract new entrants, ultimately diluting everyone’s share of the rewards, and slower BTC growth allows “existing mining operators to grow their market share more quickly as they deploy additional ASICs”. 2022 is the year for expansion.