Bitcoin (BTC) currently sits at $6,370, a slight recovery from the March 27 pullback which saw the price drop nearly 9% in 4 hours. Despite showing some bullish signs, Bitcoin is still down nearly 30% since last Friday.
As previously reported by Cointelegraph, the crash may have been caused by the recent mining difficulty adjustment of nearly -16%. The difficulty adjustment is how the Bitcoin network adapts to the changing mining power on the network, keeping its issuance rate at a fairly steady level.
Cryptocurrency market performance since March 27th. Source: Coin360
The change in Bitcoin’s mining difficulty on March 26 was the biggest percentage drop the network has seen in 9 years and the adjustment makes Bitcoin production cheaper for all miners. It also aligns with previous correlations in difficulty drops and short-term losses for the price of BTC.
The recent nosedive is reminiscent of the previous price action occurring after the mining difficulty dropped by 7.10% on November 7, 2019. The price saw a 25.81% drop from $9,310.19 to $6,907.4 and this highlighted the strong correlation between the network’s hashrate and Bitcoin’s price action.
Bitcoin mining capitulation: A downward spiral
As explained in a recent report by Blockware Solutions, Bitcoin miners are one of the key players in the industry, collectively assuring the issuance of new coins and “distributing” them by selling each for fiat on exchanges. Miners are incentivized to liquidate their new coins to pay for operation costs like hosting and electricity. Every month, 54,000 BTC are mined which equals approximately $332 million at current prices.
While the mining difficulty seems like the catalyst for the subsequent price move, it is rather a consequence of Bitcoin mining operations shutting down and increasing sell pressure to stay afloat. Mining difficulty is regulated by the total network hash rate, which means that if a lot of miners leave the network, then the difficulty reduces…