Hashrate is often dismissed as a metric only of interest to miners. However, monitoring this metric can be valuable for other participants in the cryptocurrency market.
Why Hashrate Matters
Monitoring the hashrate for proof-of-work cryptocurrencies like Bitcoin provides numerous benefits not only for miners but also for investors, developers, and other stakeholders. Understanding the trends that influence hashrate provides insights into a network’s health, profitability, and potential future developments. Rising hashrate can indicate future profitability, which is a bullish sign. Similarly, a sudden drop in hashrate can signal a bearish trend, as miners may leave the network due to decreasing profitability or increasing difficulty. However, it would be a mistake to correlate hashrate levels purely with price movements of PoW cryptos, as there are many other valuable applications for this resource.
How to Profit from Buying Hashrate
Purchasing hashrate is as simple as visiting one of the leading marketplaces, such as NiceHash, and placing an order, which is usually paid with BTC. Multiple miners will then compete to fill the order and receive payment for every part they fulfill. The buyer then directs the hashrate towards their chosen pool and profits from the rewards they earn from their rented hashrate. For instance, on NiceHash, buyers can purchase hashrate with no contract required. Miners compete to fill the order quickly, and buyers can cancel their order at any time and receive a refund for any unfulfilled parts. After receiving their ordered hashrate, buyers direct it to their chosen mining pool to earn rewards.
Strategies for Hashrate Trading
For crypto businesses looking to profit from buying hashrate, it makes sense to start by monitoring the profitability of different PoW coins and identifying the variance in profits between different pools and assets. This process can be thought of as hashrate arbitrage, aiming to profit from market inefficiencies that often lead to certain coins becoming highly profitable. However, studying the long tail of PoW coins isn't the only way to succeed in hashrate trading. Sometimes, mining Bitcoin can be particularly lucrative due to opportunities for merge mining, i.e., mining multiple cryptocurrencies simultaneously. For instance, recent interest in the Bitcoin sidechain Fractal Bitcoin has driven up hashrate prices, rewarding businesses that recognized this emerging opportunity.
Hashrate is an important and often undervalued market that can provide significant returns for participants who time their entry correctly and direct their rented hashrate to networks with the greatest opportunities.
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