Every time the difficulty of mining bitcoin declined by more than 10 percent in the past, it marked a local bottom for the dominant cryptocurrency. On March 27, the mining difficulty of bitcoin is set to drop by 10.2 percent.
Cryptocurrency analyst Nunya Bizniz said:
“Bitcoin difficulty adjustments alter the difficulty of miners finding blocks. They occur every 2 weeks. There have been 4 instances where an adjustment has been -10% or lower. Thursday is the next adjustment. Its estimated to be -10.2%. Market bottom?”
The mining difficulty adjustment of bitcoin comes after the substantial drop in the BTC price from $8,000 to $6,200 within less than two weeks. At its lowest point of the month, the bitcoin price dropped to as low as $3,600 across major cryptocurrency exchanges.
Mining difficulty adjustment of over 10% often marks bitcoin bottom, but not all the time
In the past nine years, bitcoin experienced five mining difficulty adjustments of over 10 percent. Although the bitcoin price increased over time from the point of adjustment, it did not lead to an immediate upsurge in several instances.
In December 2018, as an example, the mining difficulty of bitcoin dropped by 15 percent. The price was hovering at around $3,150 at the time, and it took more than three months for the cryptocurrency to start rallying by mid-2019.
In October 2011, when the mining difficulty of bitcoin was adjusted by -18 percent, the bitcoin price further dropped by around 30 percent before it started to recover to previous resistance levels.
The drop in mining difficulty often coincides with a market bottom because historically, bitcoin has tended to bottom when investors begin to demonstrate peak levels of fear.
As investors capitulate, mining centers close down due to inadequate revenues to cover expenses, and businesses begin to fold, an accumulation phase begins at a low price range. An accumulation of several months then creates a stronger foundation for bitcoin to recover from in the medium-term.
One variable in predicting the bottom of the bitcoin market is its correlation with the U.S. stock market as of late. Some investors have said that bitcoin is not likely to hit its bottomun until U.S. stocks recover. Based on the current trend of the coronavirus pandemic, it remains unclear when the sell-off in the stock market would slow down.
How about other cryptocurrencies?
In times of uncertainty, investors in the cryptocurrency market often flock to either bitcoin or stablecoines in the likes of Tether.
All major alternative cryptocurrencies including Ethereum, XRP, Bitcoin Cash, and EOS have massively underperformed against bitcoin in recent weeks.