As miners flee, will Bitcoin prices reach new peaks?

Original author: medium-coinmonks
Original translation: BlockBeats-HQ

Mining difficulty may be an indicator for predicting BTC prices. Cryptocurrency researcher PlanB said that the three major bull markets in Bitcoin's history all broke out after the mining difficulty hit bottom, which means that the market may see a strong rise this year.

Using mining difficulty to predict a Bitcoin bull run

Although the cryptocurrency market is known for its extremely high volatility, its market movements occur in cycles. Cryptocurrency analysts use a variety of different tools and factors to predict the duration of each cycle and the different factors that influence market movements.

Moving averages are a favorite analysis tool among analysts because they provide fairly accurate predictions of major price rallies. However, cryptocurrency researcher PlanB has found a different method that can more accurately predict Bitcoin price movements.

In a Twitter stream, the researchers explained how the past three Bitcoin bull runs began when mining difficulty hit bottom.

He explained that every time the mining difficulty reaches an all-time high, the price of Bitcoin will drop sharply and continue to fall until a large portion of miners become unprofitable. When the price of Bitcoin starts to rise and market competition intensifies, many miners can no longer run their hardware, forcing them to give up.

Bitcoin’s price is supposedly driven up by profitable miners

When miners leave the network, the computing power of the entire network decreases. Soon after the computing power of the entire network decreases, the mining difficulty will also be adjusted accordingly.

Over the past 10 years, every time Bitcoin’s mining difficulty hit rock bottom, a major bull run followed. Charts shared on Twitter show that the hashrate bottomed out in early 2012, the second quarter of 2015, and late 2019.

The graph also shows that drops in mining difficulty occur every 3-4 years, or when approximately 20,000 blocks have been generated since the last mining difficulty floor was reached.

While there is no guarantee that this market cycle will replicate the previous two cycles, if it does, it means that the price of Bitcoin could reach a new all-time high. Based on the low-high trend shown in the figure, Bitcoin's next "high" could be 1,000-2,000% higher than the price at the lowest mining difficulty in this cycle.

With Bitcoin’s price hovering around $3,500 at the end of last year, a 100% mining difficulty would mean its price could reach $35,000 to $75,000 in the next few years.

After a Twitter user pointed this out, PlanB said that this is actually a fairly conservative estimate, explaining that the last two “all-time highs” Bitcoin reached after miners fled saw prices rise by around 100x.

That said, PlanB’s analysis could be completely wrong. Several mining experts told CryptoSlate that mining difficulty is a lagging indicator, not a predictor of Bitcoin price. As BTC price rises or falls, mining difficulty adjusts accordingly, not the other way around. Therefore, the two are closely correlated, and PlanB’s reasoning about the direction of causality between the two is likely questionable.