July 3 saw the largest ever drop in Bitcoin’s difficulty, not counting the crashes in 2009 in the early days of the cryptocurrency.
Recall that the complexity is recalculated every 2016 blocks and acts as a metric that regulates the speed of creating BTC and cryptocurrency blocks depending on the hashrate – the total computing power of miners’ devices. Some experts base their assumptions about Bitcoin’s price movement on complexity.
As we have already noted, complexity determines the relative ease of finding a block solution in a cryptocurrency network and creating it. The lower the difficulty, the easier it is to create a block – and vice versa. Complexity directly responds to changes in the hash rate, that is, the amount of computing power in the blockchain. When there are more miners, the difficulty increases, when there are fewer, it decreases.
This is necessary in order for the rate of creation of a new cryptocurrency, which is formed as a reward for blocks, to correspond to a predetermined rate. It is thanks to the changes in the difficulty parameter that the last bitcoin of 21 million coins will be mined by 2140, and not earlier.
On the third day, the difficulty indicator decreased by 27.94 percent – from 19.93 T to 14.36 T. The average block time in the blockchain for this period was 13 minutes 53 seconds instead of the normal 10 minutes. Therefore, changing the difficulty this time took not the usual two weeks, but twenty days.
For clarity, we present a table of changes in the difficulty of mining BTC in 2021.
The low speed of creating BTC blocks and the operation of the cryptocurrency network affected other parameters. In particular, on June 27, the Bitcoin network recorded the lowest inflation rate. In other words, the new cryptocurrency was created more slowly than ever, which also became a consequence of the disconnection of many miners from the network and a drop in the hash rate.
Against the background of the event, experts undertook to draw conclusions from the situation and predict the further development of the cryptocurrency industry. Here is one of these versions.
What will happen to the price of Bitcoin?
As we noted, on Saturday morning, BTC mining difficulty dropped by about 27.94 percent on block 689 472. The drop in the indicator is directly related to the massive disconnection of large miners from the network in China. They are forced to migrate to other geographic regions due to pressure from the local government, which this time has clearly come to seriously oppose mining.
According to analysts, the government creates problems for miners for a reason, but for the sake of popularizing its own national digital currency, known as CBDC. At least novice investors are unlikely to want to use BTC, knowing about a similar attitude towards cryptocurrency on the part of the state. It is in such conditions that they supposedly have to make a choice in favor of a centralized project of officials.
It is assumed that it will take at least several months for the migration and final inclusion of all «dropped» miners into the network. That is, in the near future, the hash rate will probably not grow to its former heights and set new records. At the same time, the hash rate change often goes side by side with a similar price change. This statement was supported on Twitter by investment manager Timothy Peterson, who does not expect a noticeable rise in the value of BTC before the fall.
As proof, he cites the so-called Bitcoin hashrate model. Peterson refers to it as P (H), which is plotted at 1.5 square roots of the hash rate at each time slot .
From this we can conclude that the expert is counting on the relative stabilization of the Bitcoin exchange rate over the coming months. At least this has happened before.
The next important graph is the price versus hashrate model, reports Cointelegraph. When it reaches one, we can talk about the return of Bitcoin from the bubble stage to normal. Now this chart is just moving towards the aforementioned mark, while the current local maximum of the price-to-P (H) ratio is clearly outlined on it.
The problem is that according to this model, Bitcoin will not break out of the bubble until October 31, 2021. Only then will it be possible to say that the market «has found its bottom,» says Peterson.
However, even the analyst himself admits that the model has many flaws, and it cannot be used for accurate predictions. This is just a rough assumption – Bitcoin will remain relatively stable until mid-fall.
We believe that attempts to predict the behavior of the BTC rate and the market as a whole based on the complexity of mining the first cryptocurrency are quite risky. First of all, the development of the industry is influenced by a lot of factors, including the attention of large professional investors, the recognition of Bitcoin as official national means of payment, and even the reputation of BTC mining, taking into account its purity. Therefore, attempts to abstract from all the details and assess the prospects of a niche based on one indicator most likely will not work. However, one must also take into account the option voiced by Peterson.