According to analyst Akash Girimath, author of the content presented in this text, the key to this issue is mining
Neither Bitcoin nor any of the popular altcoins on the market are the best bets for maximum returns. Yes, Bitcoin more than tripled in the past year and yes, it is expected to do something similar in the next bull run, but it won’t, and this is thanks to the backbone of the Bitcoin industry – the miners.
The rise in Bitcoin’s price has exceeded everyone’s expectations, with the cryptocurrency not far from its $ 42,000 ATH so far. This clearly deflected institutional interest for BTC as an alternative investment asset. In fact, many institutions are buying Bitcoin and have invested in it over $ 30,000, expecting it to rise further.
In any case, the Bitcoin mining industry is one that will explode more than the price of BTC, and here’s why.
Bitcoin price vs miners – the cycle
In short, an increase in the price of Bitcoin has a cyclical effect. It all starts with the anticipation of a higher price, something that brings investors with capital to the ecosystem. This pushes the price up, leading to good profits and attracting more investors. However, to sustain the entry of new capital, Bitcoin miners need to mine new blocks. A sudden increase in the price of Bitcoin leads miners to profit more. At this point, miners have more BTCs that are worth more than normal, causing them to hold coins.
The more coins miners hold, the less sales pressure the entire industry faces. This causes a supply shortage, pushing the price of Bitcoin up. This causes two things: it attracts more investors and eventually attracts more miners to mine Bitcoin, causing the hashrate and the difficulty to increase to balance it.
Unlike buying Bitcoin, the mining industry is not just about the rewards earned for mining. It involves mining manufacturers, chip makers, mining competitors, among others.
Ahead of the curve
Clearly, industry leaders like Binance, OKEx and Huobi have been ahead of the curve since they launched their mining pools in 2020. Not only has it made exchanges richer directly from their mining foray, it has also provided exchanges with BTC liquidity mined. Even American market players such as Coinbase, Digital Currency Group, Blackcap, etc., directly or indirectly, entered the market in anticipation of this demand.
While this is a big side of the mining industry, there is another side that provides the necessary facilities to keep the ball rolling – companies that provide capital to miners or finance them. So far, Genesis has been the most popular company to do this. More recently, Galaxy Digital established Galaxy Digital Mining, a development that, according to a Press release, exists for:
“Offer risk management and trade solutions, major loans and equity investments, and mergers and acquisitions advisory services to Bitcoin miners. In addition to providing financial services to miners, Galaxy Digital Mining will also mine Bitcoin on a proprietary basis. ”
Although a complex network of industries is working together, the mining industry will be the sector to witness major improvements and adoption in the years to come.