Bitcoin breaks out of its slump
Volatility is par for the course when it comes to cryptocurrencies and even Bitcoin, the king of cryptos, carries it in spades. The leading cryptocurrency has been trending to the downside the past few weeks, yet today it surged through immediate resistance levels, and bulls may attempt to retest the $50,000 mark once again.
Bitcoin is currently up 68% since the beginning of 2021, but has dipped by 27% from its $68,000 all-time-high achieved on November 10.
In today’s analysis, we’ll look at the wider market movements surrounding the cryptocurrency market as well as what the technical picture has to say about the recent bitcoin breakout.
Hash rate drop
Bitcoin mining has always been dominant in China, despite the Chinese government’s efforts to crack down on cryptocurrency mining in the region.
In May 2021, however, around 50% of bitcoin miners were ousted by the Chinese government or left of their own accord due to the increased regulatory oversight. This decimated bitcoin’s hash rate.
Ostensibly, the Chinese government wasn’t opposed to cryptocurrencies in general, merely to those that weren’t under its direct control. After the crackdown, China’s central bank outright outlawed all cryptocurrency transactions. And thereafter, issued its very own digital currency, the digital yuan, which is technically not a cryptocurrency. Cryptocurrencies typically run on a decentralized network and aren’t government-owned or controlled – it kind of defeats the purpose.
The exodus of miners from China to countries such as the US, Ukraine, Kazakhstan, and Kyrgyzstan was also met with resistance. Mining sites consume large amounts of power, which also raises environmental concerns, and more countries are starting to ban cryptocurrency mining and driving miners from their soil.
This phenomenon of ousting miners is not only happening in Kazakhstan, but Kyrgyzstan as well. And this is causing bitcoin’s hash rate to drop further, although not at the same levels as those in May.
This hash rate drop triggered some of the paper-handed investors to exit the market. However, at the same time, a lot of long-term holders have started accumulating higher amounts.
The hash rate declined by a total of 27%, but recently we have witnessed a dramatic recovery and the momentum is picking up pushing rates towards 6-month highs.
Further data shows that more and more coins are being withdrawn from major exchanges, although this appears to be stalling in recent weeks. And obviously some bigger wallets are accumulating.
The price has remained flat on the internal trendline although it was overshot earlier in December. At the same time, volatility has died down, which resulted in the formation of a Falling Wedge pattern.
The recent breakout also suggests the completion of the pattern. Usually when such a pattern concludes, the potential upward momentum will be higher. With this in mind, heightened volatility is to be expected in the near term.