Monitoring mining difficulty may help bitcoin pundits predict the next rally
As bitcoin owners wait in earnest for the next move higher, should it come, the debate over what will fuel a potential rally rages on.
But, instead of the usual spiel that ranges from institutional adoption to blockchain efficiency or robust regulation, crypto bulls may want to take a look at this chart to find out when the next move higher is coming.
The chat is the price of bitcoin BTCUSD, +1.93% with plots that indicate when what is known as bitcoin mining difficulty growth turns negative. This happens when the difficulty — a mathematical target set by the protocol — is higher than the random probability a miner has of solving the complex problems to validate transactions on the blockchain.
“Monitoring bitcoin difficulty growth is an important indicator of how close we are to the mining breakeven threshold and if we are going to experience a period where inefficient miners begin to leave the network,” wrote Kevin Lu and Thejas Naval of Element Digital Asset Management, in a research note.
The team added that as miners leave the network it can indicate a rally is coming, but not immediately “Historical cycles suggest that we may need to experience 6 to 12 months of negative to flat difficulty growth for prices to bottom,” they added.
However, with mining difficulty negative for the second time this year and bitcoin now 10 months into its current bear-market, defined as a fall of 20% from its alltime high, those holding their prized digital assets may be on the cusp of a change in fortunes.
“Historical cycles also illustrate that periods of negative difficulty growth occur near bear market cycle bottoms,” they wrote.
This article was originally published by Market Watch
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