A further reduction in mining difficulty and five topics to keep an eye on regarding Bitcoin.

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Bitcoin may have just seen its largest difficulty drop in history, but experts predict that the next one will be even worse as miners continue to struggle.

Bitcoin (BTC) begins the new week in familiar terrain, following a weekend of good gains that ended in a drop – what lies ahead?

The largest cryptocurrency is showing indications of strength, with another rise to almost $36,000 under its belt, although previous barrier levels remain in place.

The situation is complicated – the continuous miner migration and resulting price movement has frightened many, and Bitcoin’s most accurate forecasting systems are being put to the test.

However, with fundamentals now showing signs of life, bulls may have plenty to rejoice.

This week’s BTC/USD price action is influenced by five variables.

Stocks records and and oil feud

The S&P 500 has set fresh all-time highs for seven consecutive days, creating an unsettling “Roaring Twenties”-style vibe on global markets this week.

In recent weeks, the stocks index has risen due to encouraging economic data from the United States and the Federal Reserve’s continued initiatives.

“Markets are priced for the continuation of a scenario that could not be better constructed,” Chris Iggo, chief investment officer for core investments at Netherlands-based AXA Investment Managers, summarized in a note quoted by Bloomberg.

Oil, which is again at the focus of another OPEC+ output conflict, is rising but raising concerns about how much gasoline will be available in August.

With the US currency stable, it appears that the stocks story will be the main driver going ahead, which has historically aided Bitcoin price action.

S&P 500 1-day candle chart. Source: TradingView

Fundamentals aren’t out of the woods

Bitcoin had its largest-ever difficulty drop this weekend, but even that may not be enough to keep the ship afloat.

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Saturday’s drop, at 27.94 percent, far outperforms all previous drops, demonstrating the impact of China’s anti-mining campaign on the Bitcoin network.

According to data from monitoring resource BTC.com, however, the next adjustment may see an even larger drop.

Because difficulty changes can only be predicted before they occur, and a lot might happen during each two-week difficulty period, it is impossible to tell exactly how much the measure has to fall to reflect the true condition of the network.

Mining is now much more economically appealing to many existing and future participants as a result of the recent decrease. As a result, more miners may start working in the next thirteen days, boosting the hash rate and perhaps reducing the need to reduce difficulty even further.

A look at hash rate activity in recent days shows that a U-turn may have already taken place, with hash rate spiking above 90 exahashes per second (EH/s) versus lows of 83 EH/s last week.

At the time of writing, however, Bitcoin is on track to lower difficulty by another 28.68%.

“After yesterday’s record-breaking -27.9% difficulty adjustment, Bitcoin’s difficulty is now similar to the levels after last year’s halving event,” popular Twitter account Dilution-proof noted on Sunday alongside an annotated difficulty chart.

“Price, however, is +263% higher. This illustrates how incredibly profitable bitcoin mining has become for efficient miners.”

Bitcoin difficulty 7-day average chart. Source: Blockchain

BTC price action spooked at $36,000

The difficulty drop at least had good timing — once in, Bitcoin price action saw a welcome boost and climbed back towards the upper bound of its trading range.

Throughout the rest of the weekend, BTC/USD saw little by way of resistance and added around 5% before retracing.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

What might dampen the enthusiasm even more? According to prominent analyst Rekt Capital, two now-famous moving averages (MAs) might be the bears’ greatest buddy in the coming days.

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Last month, BTC/USD saw a “death cross,” as reported. This refers to the 50-day moving average crossing below the 200-day moving average, which is typically viewed as a negative indicator.

In truth, “death crosses” do not always result in price losses, but their reputation has remained strong this year.

Current price strength may now receive a taste of reality if Bitcoin reaches either MA, which is now hovering above spot price.

“Once BTC is able to clear $36000… Next major resistance will be the ~$38000 area,” Rekt Capital explained on Sunday, adding a summary chart.

“Not only is this the Range High of the macro consolidation range Bitcoin is in now… But the two $BTC Death Cross EMAs (50 blue & 200 black) will likely act as confluent resistance there too.”

BTC/USD annotated chart with “death cross.” Source: Rekt Capital/ Twitter

Trader Crypto Ed meanwhile warned on Monday that the weekend’s ground would ultimately be lost again.

“Full retrace coming up,” he said, arguing that the market needed “proper retests” of lower levels in order to fuel a true bullish resurgence.

BTC/USD corrected from highs of $35,900 to bounce off $34,000, a level which is still holding at the time of writing.

Volume fails to buoy bull case

For those looking for one basic market characteristic — volume — the weekend surge appeared suspect.

Despite the rapid rate of increases, volume sustaining them remained modest, and as a result, their dependability and capacity to maintain themselves was called into doubt from the start.

On Monday, CryptoQuant, an on-chain monitoring service, reported that volumes are still decreasing, indicating a lack of interest from large prospective purchasers.

“BOTH Inflow and outflow are drying out with the trading volume in the market. Seems like the whales are staying low without much actions,” the firm said in a blog post.

“Push to either side of the market would have a high possibility of triggering a relatively big reaction to the price.”

Bitcoin volume data chart. Source: CryptoQuant

On Saturday, however, statistician Willy Woo noted an instantaneous uptick in Bitcoin entities holding large amounts of BTC — a classic signal that whales are interested. This followed the downward difficulty adjustment.

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As reported, other investor profiles are also getting in on the spare Bitcoin supply, notably the so-called “Rick Astley” type, or hodler of last resort.

“Mr Astley is saying ‘shorters gonna get rekt,’” Woo commented alongside additional supporting data.

Investor confidence slowly return

Just how bearish is the average Bitcoin market participant now?

That question is traditionally answered by the Crypto Fear & Greed Index, and if to believe its readings this week, things may not be all that bad.

Fear & Greed scored 29/100 on Monday, its best in over three weeks. The last time this happened, BTC/USD was on its way to the local high of $41,000 in June.

Fear & Greed employs a variety of criteria to provide sentiment assessments for cryptocurrency markets, assisting in determining whether assets are overbought or oversold at a given price.

Its bullish peaks typically reach 95/100 or higher, giving Bitcoin plenty of space to climb until “extreme greed” arrives and causes a collapse.

The index saw lows of 10/100 — “extreme fear” — on June 22 before rebounding.

Crypto Fear & Greed Index 1-month chart. Source: Alternative.me

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