Bitcoin mining activities continue to collapse: is BTC price reversal nigh?

As investors withdraw money from the crypto market, Bitcoin’s (BTC) dominance has recently plateaued. In past cycles, the power of Bitcoin rose dramatically under pressure. But in November 2022, several events led to a flight of investors from the market. Interestingly, days later, the most significant asset by market value experienced a mining difficulty reduction of 7.32%.

What the reduction of mining difficulty means

A significant difficulty drop was observed in Bitcoin mining, the most valuable crypto by market capitalization and a well-known shelter for investors during times of geopolitical crisis. At a block height of 766,080, the mining difficulty adjustment for Bitcoin decreased by 7.32%. The mining difficulty has now been reduced the most in 2022.

Currently, there are 34.24 trillion problems. It will stay in this position for two weeks or 2,016 blocks. As the profitability of mining Bitcoin declines due to the bear market, miners are turning off the equipment to survive.

The most significant decrease in mining difficulty since some miners stopped working and moved from China to the West in July 2021 has occurred since the most recent adjustment. China was the world’s biggest center for Bitcoin mining before it banned it.

To maintain a relatively constant time for mining a BTC block, Bitcoin automatically adjusts its mining difficulty based on the amount of hashrate or internet computer power. The problem arises when many miners are online and vice versa.

Bitcoin miners have seen a drop in their income in the second half of 2022 due to the collapse in BTC’s price. The profitability of mining Bitcoin has significantly decreased due to rising electricity prices, which raise mining costs.

While Compute North filed for Chapter 11 bankruptcy, primary producers, including Argo Blockchain (ARBK) and Core Scientific (CORZ), have experienced financial issues. The mining industry is no longer profitable by around 20% over the last month, according to Luxor’s hashprice indicator.

Bitcoin’s dominance plateaued at around 40%, as many investors quit

A crypto slaughter occurred in November due to the insolvency and subsequent collapse of the FTX exchange. Trading company Alameda Research, owned by Samuel Bankman-Fried, filed for Chapter 11 bankruptcy with FTX exchange and 190 affiliated firms.

The exchange is still insolvent and owes its debtors $3.1 billion. Many hedge funds were on the verge of collapse or declared bankruptcy in November. The crisis spread to crypto lenders, other exchanges, and crypto trading companies.

The FTX exchange failure is comparable to a crypto bank run in that it spreads fear among market players and forces several investors to leave the crypto ecosystem altogether. Investors would choose Bitcoin as a haven during unexpected occurrences and times of global crisis, which led to a growth in BTC dominance.

However, the trend has shifted this cycle, as Bitcoin’s market share has remained at 40%. Bitcoin exchanges have lost approximately $1.8 billion in value in the last month. While some investors have converted their holdings to cash and sold their positions while suffering significant losses, others opt for self-custody and removing BTC from exchanges.

Is Bitcoin’s price getting ready for a potential reversal?

Over the past month, Bitcoin holders have lost 20.3% of their investment. According to an analysis of the BTC price chart, the asset cannot remain oversold for very long. The trend in Bitcoin’s price is about to reverse.

There have been trend reversals between 2016 and 2019, as shown in the Bitcoin price chart below. In the latter few months of 2022, a comparable pattern has evolved.

A cryptocurrency analyst Gert van Lagen has high hopes for Bitcoin. In the expert’s opinion, the Wyckoff accumulation thesis would be supported by a breakout above $18,100.

Wyckoff’s theory explains crucial components in price trend development that are distinguished by intervals of accumulation and distribution. Technical experts believe that Bitcoin will have a prolonged rally.