- Bitcoin’s mining difficulty suddenly dropped.
- The move down indicates that inefficient miners are going out of business.
- The capitulation of weak miners is long-term bullish for the dominant cryptocurrency.
Bitcoin’s slow descent from the 2019 high of $13,880 to its current level of $8,130 is starting to put weak miners out of business. Over a week ago, the largest cryptocurrency’s mining difficulty suddenly plunged 7%. The drop in difficulty makes it easier for miners to solve algorithms and mine blocks.
The development suggests that weak miners, or those with high operating costs, are going out of business.
This does not bode well for bitcoin HODLers, as capitulating miners precede a massive bitcoin dump. The good news is that the expected selloff is nothing more than a shakeout. A Bitcoin network with highly-efficient miners will likely reduce the number of sellers after the May 2020 halving.
Bitcoin Shows Signs of Bearishness Ahead of Halving
The bitcoin halving is one of the most bullish events in the cryptocurrency world. It is a time when block rewards are slashed in half. In the first halving in 2012, block rewards were reduced from 50 BTC to 25 BTC. A month later, bitcoin skyrocketed by over 7,976%.
The second halving happened in July 2016 as block rewards dropped from 25 BTC to 12.5 BTC. Over a year later, the cryptocurrency’s price rose by 2,902%.
The previous two halvings have increased the value of bitcoin by decreasing the number of BTC in circulation. I expect the third halving to have the same effect.
However, Willy Woo, an on-chain analyst, is concerned that bitcoin is heading into the halving without any bullish steam. The analyst claims that the dominant cryptocurrency has never
gone into a halvening in bearish price action.
Bearish Bitcoin Price Action Is Probably a Shakeout
With mining difficulty taking a downturn, it won’t be surprising if bitcoin dumped. A significant drop in price would indicate that weak miners are selling to cut their business losses. The selloff might trigger retail investors to also relinquish their holdings.
Should another bloodbath take place, it won’t be out of the ordinary. According to Rekt Capital, there has always been a shakeout before the halving. The trader carefully studied the price action of bitcoin prior to the first two halvings. Rekt Capital concluded that weak hands get shaken out and lose out on future gains.
Miner Capitulation Now Should Minimize Selloff After the Halving
Weeding out inefficient miners contributes to the long-term health of the Bitcoin network. Those who manage to stay in business in the coming months are likely the ones operating at locations with cheap power costs while running efficient mining rigs. If they survive the anticipated shakeout, they’ll likely survive the immediate impact of the halving.
Keep in mind, block rewards will be reduced from 12.5 BTC to 6.25 BTC. Miners’ income would be slashed in half. Thus, only the most efficient miners will likely remain operational after the halving.
However, if weak miners get shaken out before the halving, it is possible that only a handful of miners would capitulate after the May 2020 halving. This is long-term bullish for bitcoin as it minimizes the number of sellers after the halving. With most of the miners holding on to their coins, I expect bitcoin to take off quickly after May 2020.
Disclaimer: The above should not be considered trading advice from CCN. The writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.
