Biggest ever mining difficulty drop: 5 things to watch in Bitcoin this week
Bitcoin network fundamentals reflect the mass mining migration underway this month, but BTC price action still makes gains.
Bitcoin (BTC) starts a new week with a key weekly close under its belt and everything to play for — can it hold higher?
After the weekend saw moderate volatility, including a retest of $30,000 support, BTC/USD is back above $35,000.
Despite the negative press, FUD and miner shake-up from China, the latest BTC price action shows that the largest cryptocurrency still has energy left to fight.
Nonetheless, the risk of a further downturn remains, and by no means is everyone convinced that the market has truly bottomed.
Cointelegraph considers five factors at play when determining where Bitcoin is headed next in the coming days.
Kiyosaki: Get ready for “biggest crash in history”
It’s stocks rather than the U.S. dollar leading the pack this week, as the S&P 500 sees its best week since February.
On the back of easing concerns over the Federal Reserve boosting interest rates, equities rallied throughout last week. This contrasts with a cooling U.S. dollar currency index (DXY), which has halted gains in recent days after a rip roaring week last week.
With the S&P 500 thus hitting a fresh all-time high, the risk of a change-up nonetheless cannot be discounted, commentators argue.
“The risk of higher bond yields – and potentially a pull back in equities – due to ongoing strong U.S. economic data remains,” David Bassanese, chief economist at Australian funds provider BetaShares, wrote in a note quoted by Bloomberg.
So far at least, long-term bond yields remain contained and equities more focused on the V-shaped rebound in economic growth and corporate earnings.
U.S. dollar currency index 1-day candle chart. Source: TradingView
Amid a narrative of constantly higher highs in stocks despite the economic difficulties caused by coronavirus reactions, however, Bitcoin proponents have long been forecasting a day of reckoning.
Chief among them is Robert Kiyosaki, author of the popular book, “Rich Dad Poor Dad,” who on Monday repeated his warnings over global markets.
“The best time to prepare for a crash is before the crash. The biggest crash in world history is coming,” he told Twitter followers.
The good news is the best time to get rich is during a crash. Bad news is the next crash will be a long one. Get more gold, silver, and Bitcoin while you can. Take care.
Bitcoin seals key weekly close…
For the Bitcoin spot price, Sunday ultimately gave bulls the happy ending they had been looking for.
This specifically involves the weekly close, which as late as Saturday had been in danger of materializing below key levels needed to preserve the chances of further gains.
In the event, BTC/USD beat expectations, rising by over $2,000 in hours overnight to see local highs of $35,250 on Bitstamp and a weekly close above $34,000.
This puts the pair right on target and is “fantastic for bull-side momentum,” analyst Rekt Capital previously said before the data came in.
BTC/USD chart with weekly close target. Source: Rekt Capital/ Twitter
As Cointelegraph reported on Sunday, Rekt Capital can thus continue eyeing a more positive Wyckoff scenario which involves a potential local top in the mid-$40,000 range.
Another popular social media trader called the overnight rise “significant” and focused on $35,000 resistance, along with Bitcoin’s rising relative strength index (RSI) to catch potential oversold (and overbought) levels.
Further gains would also go some way to correcting the so-called “death cross” which occurred previously — where the 50-day moving average crosses the 200-day moving average in a move which has received considerable press attention.
…But will notch a record difficulty drop
For those who cheered Bitcoin’s biggest difficulty increase since 2014 just six weeks ago, there’s bad news.
As network fundamentals struggle in the wake of China’s mining shakeout, a difficulty adjustment this week will lay bare just how large an impact recent events have had.
In four days’ time, difficulty will adjust down by an estimated 23.24% — something which has never happened before in Bitcoin’s lifetime.
The record-breaking downward adjustment is a reaction to the mass offlining of Chinese miners, and for some — including those who are relocating overseas — it’s a gift.
Such adjustments keep Bitcoin mining competitive while preserving network security. Lower difficulty incentivizes more miners to join by making the process cheaper. This in turn raises competition, meaning that in general, larger downturns are followed by increases.
“Mining hashrate could decline significantly, but difficulty would just adjust downward the network would clear blocks, and the remaining miners would become much more profitable, having to sell fewer coins, spurring the price upward, incentivizing more mining,” Saifedean Ammous, author of “The Bitcoin Standard,” summarized in a series of tweets about current events last week.
Difficulty adjustment is the magic sauce that makes bitcoin work. It means that bitcoin mining grows & shrinks to the size it needs to survive & keep blocks clearing.
Bitcoin difficulty 7-day average chart. Source: Blockchain
As Cointelegraph reported, hash rate — the amount of computing power dedicated to mining — has declined since the China debacle, but how much depends very much on the estimate used.
According to MiningPoolStats, the preferred data of Blockstream CEO Adam Back, hash rate currently stands at around 83 exahashes per second (EH/s), down from a peak of 168 EH/s.
Global adoption drive continues
A zoomed-out look at the state of Bitcoin adoption provides some welcome relief to the decidedly iffy spot market.
As Cointelegraph reported, El Salvador has set off something of a domino effect with its law to make Bitcoin legal tender which enters into force in September.
Paraguay is next in line to bring a legal motion before parliament, with details yet to be unveiled in full after a legal tender bill was submitted on June 24.
Elsewhere, despite no formal changes to Bitcoin’s status, proponents appear emboldened by recent events.
Ricardo Salinas Pliego, the third-richest man in Mexico according to Forbes’ rankings, reiterated Bitcoin as being the “new gold” this weekend, revealing his own contribution to local adoption.
His banking business, Banco Azteca, is in the process of incorporating BTC, Salinas confirmed on Twitter.
“Bitcoin is a good way to diversify your investment portfolio and I think that any investor should start studying cryptocurrencies and their future,” he wrote.
At Banco Azteca we are working to bring them to our clients and continue to promote freedom.
All within a climate of “extreme fear”
Even on the back of 5% daily gains, sentiment around Bitcoin is still firmly fear-driven.
That’s according to the classic sentiment gauge, the Crypto Fear & Greed Index, which on Monday measured just 25/100 despite the price rises.
A curated indicator of how cautious traders likely are, Fear & Greed dipped to rare lows in the past month, bottoming out at just 9/100.
Crypto Fear & Greed Index. Source: Alternative.me
While its score has since almost trebled, the feeling among market participants remains “extreme fear” — implying that there is plenty of potential to accommodate large price hikes.
The opposite end of the spectrum, “extreme greed,” tends to precede price drawdowns.