- Bulls seem likely to maintain hold over weekend with Bitcoin at a daily high of USD 8,247
- A difficulty adjustment downwards last month could be the marker that a major bottom has been reached
- JPMorgan Chase says that next week’s new Bitcoin options offering from CME Group has been stirring unusual amounts of interests from investors
Bitcoin looks set to continue a second consecutive week of bullish trading in 2020, as price slowly creeps back up above USD 8,000 after yesterday’s bounce. It would seem that buyers are now hoping to make the new critical support at this level after wees of previous support at USD 7,000.
For now, Europe takes over on weekend trading near USD 8,048, closet to the daily high of USD 8,247 than the low of USD 7,778 (CoinDesk). The bounce should be very motivating for short-term traders, although the medium term trend is probably closer to still bearish since Bitcoin has not moved out of the channel in six months.
However, more and more signs look like it will get Bitcoin out of the bear trend, with now the latest difficulty adjustment showing that a bottom could be very close, having already bounced from the last low at USD 6,500 last month. Data from Bitcoinity shows that that month had a slight drop in difficulty from 13.7 trillion to 13 trillion. It was the first downward adjustment in one year, and looks set to climb back up.
According to one analyst, Nunya Biznis, history has shown that after a difficult adjustment down, the market treats it like a major bottom. He shows how the last big drop in December 2018 at USD 3,100 actually happened right after a major difficulty adjustment down… price never looked back after that.
Bitcoin difficulty adjustments alter the difficulty of miners finding blocks.
Bitcoin has had 8 months where the difficulty adjustment was lower than the prior month.
These decreases have done a good job of locating cyclical bottoms.
Miner capitulation – Is the bottom in? pic.twitter.com/YtLjV0L73m
— Nunya Bizniz (@Pladizow) January 6, 2020
Looking even farther back, sideways trading in a channel was also present in 2015, before a distinct upward trend began in October, where all this was preceded by monthly declines in difficulty when miners left the network.
All this is explained by mining profitability, in which price makes a huge influence. Miners have costs associated to maintenance and equipment, and operational costs of electricity. Price lows means that they cannot earn back more than what they spend, so when miners switch off their rigs waiting for higher prices, difficulty goes down to ensure remaining miners can still mine the average block every 10 minutes.
To make matters worse, miners who shut down often have to continue selling bitcoin gained from profitable months to ensure operations are alive while waiting for prices to recover, giving more selling pressure to Bitcoin. It is around this time that the digital asset finds it bottom.
Meanwhile, the largest bank in the United States, JPMorgan Chase, has suggested that the new offerings for Bitcoin options by the Chicago Mercantile Exchange (CME) Group will stir a large amount of interest in the public when they launch on Monday next week.
Bloomberg quoted a note from JPMorgan executives made yesterday, which was led by Nikolaos Panigirtzoglou. The executive said that coming up to the release of new Bitcoin futures, public interest has been buzzing. The notes said:
“This unusually strong activity over the past few days likely reflects the high anticipation among market participants of the option contract.”
However, it should be noted that when Bakkt launched in late last year, the huge anticipation and hype leading up to the event turned out to be little more than fluff, with such tiny volumes on the day of launch, completely against expectations.
That failure to meet expectations is widely thought to be one reason Bitcoin flailed in price. Nevertheless, history shows that Bitcoin futures is not an immediate impact event, with momentum slow to gather, but leading to significant volumes later. Until today, CME futures contract expiry is still an event though to impact Bitcoin price in the short term.
Let’s see next week if anything stirs equal to the pre-launch hype!
Image Courtesy: Pixabay