Each Bitcoin bull market started with miner capitulation, says researcher
Mining difficulty could be an indicator for predicting BTC prices.
Mining difficulty could be an indicator for predicting BTC prices. All three of the major bull runs in Bitcoin’s history started after mining difficulty reached its bottom, meaning the market could see robust gains this year, says crypto researcher PlanB.
Predicting Bitcoin bull runs with mining difficulty
Despite being known for its incredibly high volatility, the crypto market moves in cycles. Crypto analysts use a variety of different tools and factors to predict how long with each cycle last and how much different factors will sway the market.
Moving averages are a favorite among analysts, as they’re able to offer a fairly accurate prediction of major price spikes. However, crypto researcher PlanB found a different, possibly more accurate way to predict Bitcoin’s price movement.
In a Twitter thread, the researcher explained how the past three major Bitcoin bull runs started when mining difficulty reached its bottom.
After each ATH #bitcoin price drops until a lot of miners aren't profitable. Miners switch off hardware (capitulate), hashrate drops, and difficulty adjusts downwards .. until miners become profitable again and difficulty rises. Difficulty bottom (100%) starts a new bull market? pic.twitter.com/IgriE3GkPq
— PlanB (@100trillionUSD) August 21, 2019
He explained that Bitcoin’s price dropped significantly each time mining difficulty reached an all-time-high, and continued to drop until a large percentage of miners became unprofitable. When Bitcoin’s price increases, and competition intensifies, many miners cannot keep their hardware going, forcing them to capitulate.
Profitable mining supposedly pushes Bitcoin’s price up
As miners leaving the network the network hashrate decreases. A decline in hashrate is followed by an adjustment in mining difficulty shortly afterward.
Over the past 10 years, each time Bitcoin mining difficulty reached its bottom a major bull run followed. The graph shared on Twitter showed the bottom was reached at the beginning of 2012, the second quarter of 2015, and the end of 2019.
The graph also showed that the drops in difficulty happened every 3-4 years, or at around 20,000 blocks since the last time a bottom in mining difficulty was reached.
While there’s no guarantee that this market cycle will follow the previous two, if it does, it could mean Bitcoin may reach new heights. Based on the lower high trend shown in the graph, Bitcoin’s next ATH could be 1000-2000 percent higher than its price during the lowest mining difficulty in this cycle.
As Bitcoin’s price hovered around $3,500 at the end of last year, when the mining difficulty reached 100 percent, it would mean its value could reach between $35,000 and $75,000 in the next couple of years.
After a Twitter user pointed this out, PlanB said that it was a rather conservative estimate. The last two times Bitcoin reached its all-time-high after miner capitulation its price increased around 100 times, he explained.
So based on the lower high trend should be seeing a top out at around 1000 to 2000% * BTCpricedifficulty low ($3500USD) = $35,000 to $70,000 somewhere around 2020 – 2023 am I reading this right?
— bitcoinfini (@bitcoinfini) August 21, 2019
That said, PlanB’s analysis could be totally erroneous. Several experts in the mining industry told CryptoSlate that mining difficulty is a trailing, not leading indicator of Bitcoin prices. As BTC prices increase or decrease mining difficulty adjusts accordingly—not the other way around. Thus, the two are closely correlated, but PlanB’s reasoning for the direction of cause and effect could be questionable.