The Bitcoin sell-off appears to be on a continuous downtrend as prices continue to fight selling pressure amidst further hash rate decline.
The last week has seen the entire cryptocurrency market witness a relief bounce in price after a persistent decline. Bitcoin, whose short investment vehicles continue to see significant inflows, witnessed an over 15% spike over the past seven days, surpassing the $23,000 mark and even reaching $24,000.
Source: Trading view
According to Arcane Research’s most recent weekly report, the last few days have also seen the greatest mining difficulty reduction since July 2021. Analysts say that this “strong negative correction” in difficulty is a result of the hash rate nosedive that set in after BTC’s all-time high.
Mining Difficulty Records Largest Negative Yearly Adjustment
The “mining hash rate,” often written as “MHR,” is a metric that indicates the total amount of computing power connected to the Bitcoin blockchain. It measures the network’s total hash rate and is an important security metric. The higher the hash rate, the more secure the network is from a 51% attack. A 51% attack further explains a situation when a group of miners gains control of more than 50% of the network’s hash power, allowing them to double spend.
It is worth noting that during the last two days alone, the Bitcoin network’s hash rate has declined by over 15%. The report also states that “the hash rate has now declined for four consecutive days, which is the longest losing streak since early April 2021.”
More data suggests that the current dip results from the ongoing BTC price correction and not due to any long-term capitulation among miners. This is further corroborated by the fact that, despite the hash rate decline, BTC’s difficulty is only 2.7% below the ATH reached in December.
The last time a difficulty in the adjustment of this magnitude was seen was in early July 2021, when the BTC price was $9200. At that time, the MHR had declined by about 15% over two weeks. The current decline is thus far less severe, but it is taking place from a higher starting point.
The Hash Rate Effect On the Market
People believe that the Bitcoin price affects the mining hash rate. When the Bitcoin price is high, more miners join the network since inefficient miners may still profit thanks to higher margins. However, if the price falls, margins shrink, and fewer miners can stay profitable.
Reports go on to state that “if the price decline continues and the hash rate falls further, we could see more difficulty adjustments of this magnitude in the weeks ahead.” However, it is also important to note that the cryptocurrency’s hash rate is still well above its 180-day moving average, which currently stands at around 138 EH/s.
Correlation between bitcoin price and the hash rate. Source: Buybitcoinworldwide.com
The current dip in hash rate is thus not indicative of any long-term capitulation among miners and is likely just a result of the ongoing BTC price correction. Nonetheless, it will be interesting to see how the situation develops in the weeks ahead.
With the hash rate plunge and the ongoing correction, it remains to be seen whether Bitcoin can stage a recovery in the near term. If the bears continue to exert their pressure, we could see BTC dip below $20,000 in the coming days. However, if the bulls can continue to defend key support levels and turn things around, we could see Bitcoin resume its uptrend and head back towards its all-time high.
Do you think the ongoing Bitcoin sell-off will come to a stop considering the current market situation? Let us know in the comment section.
