Bitcoin Difficulty & Price prediction

[hugeblack]

I have read some of the comments linking prices with the difficulty and did a quick research in an attempt to predict price behavior in the coming days and this was the result:

 
         Date                                   Difficulty                                 Change             Price Change


 - 2020-03-26 04:51:46   13,912,524,048,945 - 13.91 T          - 15.95 %          From 6700 to 5900 (4 Days)
 - 2020-02-25 10:28:42   15,486,913,440,292 - 15.49 T          - 0.38 %            From 9600 to 8500 (6 Days)
 - 2019-12-05 22:02:25   12,876,842,089,682 - 12.88 T          - 0.74 %            From 7200 to 6500 (13 Days)
 - 2019-11-08 01:30:36   12,720,005,267,390 - 12.72 T          - 7.10 %            From 9200 to 8047 (Next Dif)

Sources:
 
 - https://coinmarketcap.com/currencies/bitcoin/
 - https://btc.com/stats/diff

What I would like to say is that the decrease in difficulty gives us an indication that the price may fall in the next two weeks.

The current difficulty is at 16,104,807,485,529.00^[1] and it is expected to decrease in the next change by about -3.86%^[2], so I expect to notice a decrease in the price between the date of 19 May to the first of June.

I may bet on levels of $ 7000 to $ 8,400.

[1] https://www.coinwarz.com/mining/bitcoin/difficulty-chart
[2] https://diff.cryptothis.com/

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[Tytanowy Janusz]

Key question here is:
Is there any fundamental, economic reason for price to fallow difficulty?
Answer is:
NO

Difficulty fallows price and moor law (increase of hardware efficiency) not price fallow difficulty. This is a mistake that is repeated in many sources for unknown reasons. Just stop repeat it and let it die.

[suchmoon]

What I would like to say is that the decrease in difficulty gives us an indication that the price may fall in the next two weeks.

I think you got it backwards. Lower price may cause a drop in difficulty if the price becomes too low for some miners to continue mining. In theory higher difficulty may cause the price to drop a little bit as miners need to sell more bitcoins to pay their bills. However the total amount of new bitcoins being mined and sold by miners isn't that large compared to overall trading volumes, ~1800 per day.

[Smitty Werben Man Jensen]

What I would like to say is that the decrease in difficulty gives us an indication that the price may fall in the next two weeks.

I think you got it backwards. Lower price may cause a drop in difficulty if the price becomes too low for some miners to continue mining. In theory higher difficulty may cause the price to drop a little bit as miners need to sell more bitcoins to pay their bills. However the total amount of new bitcoins being mined and sold by miners isn't that large compared to overall trading volumes, ~1800 per day.

reportedly 1.3 million miners have been turned off, I do not know this news is true or not,
if true, then this might make Bitcoin a dump, I know if someone new to mine in bitcoin then it is now in vain,
because the price must above $ 14,000 to make miners profitable

[bitgolden]

reportedly 1.3 million miners have been turned off, I do not know this news is true or not,
if true, then this might make Bitcoin a dump, I know if someone new to mine in bitcoin then it is now in vain,
because the price must above $ 14,000 to make miners profitable

It is a tradition that old ASICs need to plug out instead of making negative profits. Here ASICs are getting old based on its profitability. So, the recent reward-drop made lots of miners old just after the day of halving. The entire mining industry needs to cope with new block-rewards and profitability, definitely it will take some time; because, out of competition some miners may even continue with negative profits with the expectation of reaching profits with future prices rather than opting to quit. Small miners are the first ones to quit or switch over to higher hash power. So, it will take time that bitcoin mining to get back to profitable after halving.

For the same reason, bitcoin prices do find a dump immediately followed by the halving but this time bitcoin markets managed to sustain at same levels to slight higher prices probably thanks to 100x more transaction fees. Usually higher transaction fees lead to bull markets. This way, when bitcoin markets remain in bullish mode, we can expect mining difficulty to increase.

[exstasie]

        Date                                   Difficulty                                 Change             Price Change

 - 2020-03-26 04:51:46   13,912,524,048,945 - 13.91 T          - 15.95 %          From 6700 to 5900 (4 Days)
 - 2020-02-25 10:28:42   15,486,913,440,292 - 15.49 T          - 0.38 %            From 9600 to 8500 (6 Days)
 - 2019-12-05 22:02:25   12,876,842,089,682 - 12.88 T          - 0.74 %            From 7200 to 6500 (13 Days)
 - 2019-11-08 01:30:36   12,720,005,267,390 - 12.72 T          - 7.10 %            From 9200 to 8047 (Next Dif)

What I would like to say is that the decrease in difficulty gives us an indication that the price may fall in the next two weeks.

Interesting observation. There is obviously some relationship between difficulty drops and downtrends but it's not as easy to trade as you think. For example the 3/26 difficulty drop did precede a drop in price, but it was only a small and short-lived correction in a much bigger multi-month bull trend.

It also may be significant that none of the above difficulty drops occurred after reward halvings. Those examples may not accurately characterize the hash rate dynamics we see today.

[KTChampions]

What is the relationship between complexity and price? I see only statistical, but it is meaningless.
I understand the relationship between price and, for example, the amount of electricity burned to operate a network. Here are obvious relationships. But an indicator of the complexity of the network, looking at which we cannot see the launch of new, more efficient mining equipment, cannot be an indicator that should be paid attention to.

[el kaka22]

Well, first of all that $7k to $8.4k is a HUGE difference, if you are going to bet your money on falling I would understand it, you do not have to give any numbers neither, just say that price will fall and that is a good enough prediction, giving that wiiiide difference is weird. However about the drop, you have checked the previous difficulty changes when there was no halving at all, there was nothing that extra ordinary that could affect bitcoin, the march one is bigger because there was pandemic and had very little with difficulty neither.

I am not saying that difficult doesn't cause it to drop, all I am saying is there is this time is a bit different and that is why I think the results could vary this time around as well, just like the big fall because of pandemic at march compared to falls of before, this could be increase as well.

[pooya87]

What I would like to say is that the decrease in difficulty gives us an indication that the price may fall in the next two weeks.

saying this is like me looking out my window and after seeing the streets are wet make the conclusion that it is going to rain in a couple of hours! (it is actually raining right now )

think about it this way, when you want to buy bitcoin (or as a trader place a buy/sell order) you are not looking at the difficulty to see how much it is to make a decision. instead you look at the "price charts" and place your orders. similarly a miner doesn't look at the difficulty, they look at price and decide whether to shut down, continue mining, hold their bitcoin or sell it or even buy new ASIC and mine bitcoin with it.
all working in the opposite direction of what you said here. price goes up and down and difficulty follows afterwards.

[adaseb]

The reason why you saw that a decrease in difficulty resulted in a decrease in price is most likely due to the fact that the difficulty decreased because BTC was trending downwards, and 2 weeks later the trend continued. Like everybody said here, difficulty follows price most of the time.

Prices goes up... so does difficulty
Prices stays the same... difficulty goes up anyways
Prices go down... difficulty usually stays constant or goes down.

This is in the macro scale of things. Hence its a lagging indicator and won't help you make any money since it already happened.

[ajaymukund]

What I would like to say is that the decrease in difficulty gives us an indication that the price may fall in the next two weeks.

I think you got it backwards. Lower price may cause a drop in difficulty if the price becomes too low for some miners to continue mining. In theory higher difficulty may cause the price to drop a little bit as miners need to sell more bitcoins to pay their bills. However the total amount of new bitcoins being mined and sold by miners isn't that large compared to overall trading volumes, ~1800 per day.

reportedly 1.3 million miners have been turned off, I do not know this news is true or not,
if true, then this might make Bitcoin a dump, I know if someone new to mine in bitcoin then it is now in vain,
because the price must above $ 14,000 to make miners profitable

I think the news is real and it's just part of the crowd. If the crowds all give up on mine bitcoin for the cost then whales will do it for them. When the difficulty decreases, the whale excavator will produce more bitcoins and then they can manipulate more easily in the future. That's the whale's strategy because they can control the market. When they have accumulated enough bitcoins, they will pump the price of bitcoin and make many miners active again. then they sell for a higher price and many people are trapped. of course this is a conspiracy theory about price manipulation but I feel it is very true. how do you think ?

[buwaytress]

What I would like to say is that the decrease in difficulty gives us an indication that the price may fall in the next two weeks.

I think you got it backwards. Lower price may cause a drop in difficulty if the price becomes too low for some miners to continue mining. In theory higher difficulty may cause the price to drop a little bit as miners need to sell more bitcoins to pay their bills. However the total amount of new bitcoins being mined and sold by miners isn't that large compared to overall trading volumes, ~1800 per day.

This. If there is a correlation, it's pure economics. Miners switch off when price goes down to the point they can't make more than they pay. Difficulty then adjusts (I think it will drop even more than the 3.x% estimated for the next adjustment, judging from a recent historic low in blocks found too.

Sorry hugeblack but you got this one wrong =)

[BrewMaster]

If the crowds all give up on mine bitcoin for the cost then whales will do it for them. When the difficulty decreases, the whale excavator will produce more bitcoins and then they can manipulate more easily in the future.

i think you are confusing a "whale" with "superman"!

the fact is that most whales don't even understand bitcoin. they think bitcoin is some numbers on some website (aka the exchange) that they can buy/sell to make money. if you tell them about mining they wouldn't know what you are even talking about.
not to mention that to mine bitcoin one has to have ASICs. your comments suggest any whale is holding some ASICs under their bed to pull out any time they want and mine bitcoin with it.

[justdimin]

It was obvious from the start that he was looking at the wrong part to make a prediction, you do not look at the difficulty because difficulty only affects miners and the people who decide on the price is not mainly miners, sure they end up selling bitcoin but that is just one part of the price, there are also other sellers and there are buyers. Which means people who trade (buy/sell) decide what the price will be. Looking at part of something that is part of something is not the way to approach bitcoin at all.

Obviously it would have some affects on the price, but nowhere near that we could make predictions based on it. At the end of the day best way to make a calculation based on anything, it would always be TA, with TA at least you make prediction based on what happened previously that could happen again.

[mikeywith]

I personally tend to believe that difficulty follows price at least, for the most part, I, however, don't completely negate the fact that at certain times the opposite is true, in fact, some respected, well-experienced miners and old-timers believe that at many times difficulty leads price, so with all due respect to some of these gentlemen who make it sound like you were trying to predict bitcoin price by multiplying the number of eggs in your fridge by the number of red socks your neighbor has, the correlation between difficulty and price is a lot more accurate than that.

One of the most (if not the most) accurate indicator on Tradingview has always been the hash ribbons indicator, it uses NOTHING but hashrate/difficulty to predict the next move with nearly 100% accuracy.



The reason why most people think this is not possible is again simply based on the lack of understanding of many things surrounding bitcoin and market cycles in general actually work, every market consists of a capitulation phase and since miners are the backbone of bitcoin, their capitulation means a lot to the price, remember the famous saying "the time to buy is when there's blood in the streets"? well, tracking difficulty could be a great way to time that.

I, however, don't think it's possible to predict price using difficulty neither opposite for a short period of time like you have demonstrated, looking at the average price of week 1 and expecting difficulty to be at x value in week 2 is not going to work, tracking larger samples like the hash ribbon indicator does is certainly an intelligent way of using difficulty to predict price.

[adaseb]

snip

Interesting chart. I can recall pretty much all those events except the ones that occured in 2013 before I got involved with crypto. How does it work exactly? It basically seems to print a "buy" whenever there is a negative hashrate retarget and this is when the moving averages are downwards because of a pro-longed bear cycle. Hence the reason why the hashrate decreased in the first place to cause a "buy" alert.

However keep in mind that bitcoin "rarely" has periods of negative retargets. The only times were during bear markets and it could be a coincidence that during those bear markets which caused the "buy" signal we ended up reversing.

This time is interesting because we aren't really in a bear market but the halving had a factor in the negative retarget we experienced.

[Wind_FURY]

OP, the whalecumulators/price-setting entities would price that in the next time in my opinion. The moment we act on it, "the pattern" might be gone.

[leyton11]

Yes, this is also a way to predict the price of Bitcoin in a short span of time. But I feel this is unstable. If we are a trader, we need accuracy to the specific price and time. We can rely on the indicators to enter the command more accurately. And, of course, watching the volatility level still help us a lot in identifying short-term trends. Thank you for sharing a highly constructive article.

[TheGreatPython]

Yeah, that is why I kept saying that bitcoin price would be unpredictable this time around because lets face it this time we had a halving that was expected by probably millions of people. I don't know the number of people who are interested in bitcoin right now, but every single one of us was looking at that date. Sure the retargeting and the difficulty could had his way as well but it wasn't like that at all this time since there was halving to go with it.

Moreover, bitcoin is doing fine, it is not crazy high, its not too low, its basically where it should be. Hell we could consider bitcoin to be a 9k stablecoin as well. No matter how high it gets or how low it drops eventually we find ourselves in 9-10k region at the end. So all in all we didn't really had any move anywhere unexpected.

[exstasie]

The reason why most people think this is not possible is again simply based on the lack of understanding of many things surrounding bitcoin and market cycles in general actually work, every market consists of a capitulation phase and since miners are the backbone of bitcoin, their capitulation means a lot to the price, remember the famous saying "the time to buy is when there's blood in the streets"? well, tracking difficulty could be a great way to time that.

There is definitely something to the idea that BTC miners are at their core BTC investors speculating just like us. Their exuberance and market capitulations are primarily observable through hash rate and only secondarily through price. This has to mean something in terms of investor sentiment (as you say, "blood in the streets") which in my experience is the biggest determining factor for long term market cycles.

I used to take the position that price determines hash rate, period. After hearing the (somewhat convincing) opinions of some OG miners and researching price vs. hash rate correlations over different periods, I am much more agnostic on the subject now. Impossible to say it's 100% this or 100% that.