On-chain data shows that the latest negative adjustment to Bitcoin’s mining difficulty means that the metric has now seen three consecutive downspikes for the first time in more than a year.
Bitcoin’s mining difficulty undergoes the third direct negative adjustment
As pointed out by an analyst in a CryptoQuant to sendthe capitulation of the miners meant that the hashrate has recently decreased, resulting in less difficulty.
The “mining hashrate” is an indicator that measures the total amount of computing power connected to the Bitcoin blockchain.
The total hashrate can be thought of as a representation of the competition between the miners on the network. Higher values of the metric mean that more mining rigs are connected to the network and therefore there is more competition between the individual machines.
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On the other hand, lower values of the indicator result in less competition for all those who are still connected to the network.
Another metric is “mining difficulty”. Since the Bitcoin network must maintain a constant “block production rate” (in practice, it must limit the number of transactions that can be handled per day), this mining difficulty continues to fluctuate to account for changes in hashrate.
For example, when the hashrate suddenly increases, miners start producing blocks faster than the limit. To counter this, the network increases the difficulty during the next adjustment so that it becomes harder to mine and therefore hash block miners more slowly.
The chart below shows the trend of Bitcoin mining difficulty over the past two years:
Looks like the metric's value has plunged down recently | Source: CryptoQuant
As you can see in the graph above, the last three Bitcoin mining difficulty adjustments have been negative. The most recent of these was the largest spike of its kind in the past year.
The reason behind this trend is that, due to the recent low mining profitability, many miners have been forced to capitulate and sell off their mining rigs. This led to a decrease in hashrate, which ultimately led to the difficulty of observing a collapse.
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The analyst in the post notes that the capitulation of the miners has historically led to the end of the bear market, which means that the low could be near for the cryptocurrency.
At the time of writing, Bitcoin’s price is fluctuating around $ 22.5k up 6% over the past week. The chart below shows the trend in the price of the coin over the past five days.
The value of the crypto seems to have been going down over the last few days | Source: BTCUSD on TradingView
Featured image from Dmitry Demidko on Unspash.com, charts from TradingView.com, CryptoQuant.com