Bitcoin prices are drawing a lot of attention from Crypto Asset Market analysts. This is because of the fact that there have been prolonged bear runs in 2018 and the few bull runs have not been able to offset the losses that investors have suffered.
There are a lot of parameters that analysts use to forecast the direction of a coming momentum. These are; trade volume, the supply of BTC, investor-driven demand, market forces, publicity, regulatory environment, just to mention but few.
One of the key indicators is mining difficulty. This is the ability of BTC miners to solve complex algorithmic equation and problems on the network in exchange for BTC rewards.
From this standpoint, Element Group- Crypto Asset analyst and consultancy firm- forecasts that the bear market is about to come to an end since there is an ongoing decline in mining difficulty.
Mining Difficulty Affects BTC Trend
Forces of demand and supply are known to affect the prices of products in a business. There is no exception in Cryptocurrency markets since the supply of Digital Assets such can distort the value. There are three ways that investors can acquire BTC coins including mining BTC, buying BTC in Crypto exchanges, or receiving BTC in exchange for goods and services. All the methods influence the supply of BTC. In particular, mining can be of importance when all other factors are held constant. Hence, the process can ease bear runs, sustain low market activities, or enhance bull runs.
However, in this context, a decrease in mining difficulty causes a technical impact on the prices rather than the simplistic notion of demand-supply price surges. Drawing conclusions from the historical phenomenon, a change in the ease of mining BTC signals an end to the prevailing market situation.
A Shift In Mining Difficulty Signals A Beginning Of A Cycle Change
Element Group has analyzed past data and has found out that it is only in 13% of the time in Bitcoin’s lifespan that there has been a decline in mining difficulty of BTC. In all the instances, the cycle dominating the market movements in the immediate last six to twelve months has always changed. Therefore, it follows that there is a high possibility that the prevailing cycle is about to change. Since it is a bear run, there are chances that a bull run is in the offing.
Additionally, before the cycle reverses and picks a bullish growth, the prices are likely to hit rock bottom. After a series of trade sessions, the market would readjust and correct itself and the BTC could start gaining momentarily aided by other factors such as positive regulation, increasing investor participation, institutional adaptation, etc.
What Cases The Decline In Mining Difficulty?
BTC prices have been falling throughout the year from a high of over $19,000 in December 2017 to the current low of about $6,352. This has triggered some miners to leave the network. This scenario lowers the mining power-harshrate- and prompts the network to notice that it is taking more than 10 minutes to mine a block. Eventually, the effect activates the platform to readjust the harshrate to the correct level leading to a decline in mining difficulty.
Additionally, due to the low prices, miners tend to hold on to their BTC rewards as the selling pressure is low. This can make some miners leave the market and the network will increase the harshrate leading to a further decline of mining difficulty and a higher likelihood of a cycle shift.