OKEX Research: Market pessimism remains, mining difficulty has been significantly reduced due to price plunge

Original source: OKEX Investment Research

Over the past week, the rebound in Bitcoin prices has slowed down, while U.S. stocks have rebounded rapidly due to the passage of the $2 trillion economic stimulus bill by the Senate and the House of Representatives. The S&P index rose 10.21% last week, the largest weekly gain since March 2009. Gold futures rose 9.5% last week, the largest weekly gain since September 2008. Bitcoin rose nearly 7% in the same trading session, but began to fall after the U.S. stock market closed. The trend of Bitcoin and the U.S. stock market has further diverged. According to Coinmetrics, the 90-day correlation coefficient between Bitcoin and the S&P fell from a peak of 0.598 on March 17 to 0.516 on March 27.
"Death Cross" formed on the daily chart

Bitcoin's 50-day moving average crossed below its 200-day moving average last week, forming a so-called "death cross," a bearish technical trend. Bitcoin has made five "death crosses" before, four of which led to further medium-term price declines, with an average price drop of about 25% in the six months after the "death cross." The only exception was in September 2015, when Bitcoin prices rose 80% in the following six months. But the situation was more special at the time, as Bitcoin had just formed a "golden cross" in July 2015, when the 50-day moving average crossed the 200-day moving average.

OKEx BTC/USDT price & 50/100/200 moving average (red/yellow/blue)

Market pessimism intensifies

The cryptocurrency's "Fear and Greed Index" reflects market sentiment to a certain extent. The index has been in the "extreme fear" range below 20 for 20 consecutive days, which is the longest period of pessimistic sentiment reaction since the Great Fall in December 2018.

Crypto Market Fear and Greed Index

Mining difficulty has been significantly reduced due to the price plunge. Due to the sharp drop in Bitcoin prices, the mining difficulty of the Bitcoin network was adjusted on March 26. According to data from the Oklink Bitcoin browser, this adjustment has reduced the mining difficulty by 15.95%. This is the fifth time in history that the value has been reduced by more than 10%, and it is also the largest drop in absolute hash value. In addition, according to Oklink's forecast, the Bitcoin network will make the next difficulty adjustment on April 10, 2020, and the mining difficulty may be reduced by another 13.85%.
The sudden drop in Bitcoin mining difficulty has historically been proven to be a signal of the arrival of the price bottom, but there are exceptions. In December 2018, Bitcoin mining difficulty dropped by 15%, but the price did not rebound until four months later. According to data from Tokenanalyst, despite the continued decline in Bitcoin prices, large mining plants and mining pools are still doing business as usual, and no obvious selling behavior by large miners has been detected. However, in the mining machine market, the average selling price of mining equipment has dropped by 30% to 50% compared to before the Spring Festival.

Bitcoin Mining Difficulty vs Price – Glassnode

The new quarterly contract still shows a negative premium. Bitcoin prices began to fall sharply after the U.S. stock market fell at the end of Friday, breaking through the key support level of 6,400, and completely breaking the previous bullish trend line. In addition, OKEx's new quarterly contract (BTCUSD0626) was launched for trading on Friday afternoon. The current trading price of the quarterly contract is still more than 50 below the spot price, which usually means that the market believes that the spot price will fall further.
The data currently have a lot of conflicting predictions about the bottom price, and it is difficult for market participants to directly observe the direction of price development. At the beginning of last week, Bitcoin rose as the stock market rebounded, but did not break through the resistance level of 7,000 above. Given that the correlation between the stock market and Bitcoin has fallen recently but remains high, we need to keep an eye on the direction of macroeconomic changes. For example, as the new coronavirus continues to spread, will the stock market fall again, or will it reverse and rise as more economic stimulus measures are introduced. At the same time, we must also observe whether Bitcoin will continue to follow the stock trend or completely decouple after a certain point in time.

Risk warning: This article does not constitute an investment recommendation. Investment involves risks. Investment should take into account personal risk tolerance. It is recommended that you conduct an in-depth investigation of the project and make your own investment decisions carefully.