The long drawn price downtrend that began in November 2021 for Bitcoin, and the larger cryptocurrency market has been plaguing the sector.
After slumping by more than 50% from its all-time high of over $68,000 in October 2021 to below $27,000 at press time, Bitcoin seems to be having a tough time recover from these losses.
The latest in this line of problems is the network's much higher mining difficulty that skyrocketed in May, leaving investors and traders with fewer signs of a Bitcoin reversal or a bottom.
In this article, we will examine what has been going on with Bitcoin's mining difficulty, and what several analysts think will happen next with Bitcoin and the crypto market at large.
Bitcoin's network difficulty, which changes every 2016 blocks (about every two weeks) to keep a consistent block duration of 10 minutes, is one of the biggest obstacles for Bitcoin miners.
Finding a correct hash that complies with Bitcoin's proof-of-work algorithm is tough, which is reflected in the network's mining difficulty. It so happens that the amount of computer power and electricity needed to mine a block increases with difficulty.
According to data from BTC.com, on May 23, 2023, the Bitcoin network difficulty surpassed its previous record high of 48.8 trillion in October 2021, to achieve a new high of over 50 trillion.
This indicates that mining Bitcoin is now less profitable and more competitive than ever.
Glassnode, in a tweet, also mentioned that to increase their overall BTC balances, miners may have switched back to holding more BTC than they sell.
The analytics firm said that Miners (apart from Patoshi and early unlabelled Miners) have increased their balance sheet by +8.2K BTC, bringing their total holdings to 78.5K BTC, as a result of a significant outflow of #Bitcoin across the FTX implosion.
Meanwhile, another entity, Will Clemente, head of the crypto research firm, Reflexivity Research had another opinion about the relationship between the rising mining difficulty and the price of Bitcoin.
In a tweet, Clemente mentioned that one of the main differences between the current Bitcoin bear market and the previous one is in the hash rate.
Clemente mentioned that today's hash rate has more than doubled from its previous May 2021 high, while BTC itself has only risen by about 75% off its lows.
Clemente mentioned that in 2019, the hash rate didn't reach new highs until BTC had increased by about three times from its lows.
The declining value of Bitcoin has also had a detrimental impact on traders and investors who are watching for indications of a top or reversal.
Some analysts and enthusiasts have warned that things might not have improved much yet.
On May 25, the well-known Twitter account @CredibleCrypto sent out a tweet to over 340,000 of its followers. In this tweet, CredibleCrypto stated that Bitcoin's move to the upside over the weekend is just bears getting squeezed as they short.
He argued that Bitcoin is moving sideways because bears are reloading their shorts before another squeeze stops them again.
Concluding the tweet, CredibleCrypto mentioned that Bitcoin will probably continue doing this until the bears "calm tf down".
Rekt Capital, another prominent Twitter analyst with over 300,000 followers, also shared a slightly more optimistic analysis tweet on May 26. He pointed out that Bitcoin has broken above a key trendline from $27,000 to $27,800 that has been valid since mid-April.
He suggested that a successful retest of the $27600 zone would not only set $BTC up for a revisit for the higher $28000s but will also invalidate the Head & Shoulders.
Bitcoin is facing a tough time as both miners and investors are suffering from the prolonged price decline. The network difficulty has reached a new high, making mining more costly and less rewarding.
The price outlook remains bleak, as some analysts expect further downside before a recovery.
However, some optimists like Captain Faibik in a tweet posted on May 28, have drawn a parallel between Bitcoin's price action in January and March this year.
Faibik, in the tweet, mentioned that Bitcoin experienced price surges of around 40% and 50% respectively, following MACD Bullish Crossovers on the charts. The analyst left the tweet with an open-ended question, wondering whether the same might happen again in June.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.