Against the expectations of most analysts, the cryptocurrency market recently experienced a minor correction once again, with the cryptocurrency market cap dipping below the $100 billion mark.
All of the top 25 cryptocurrencies including bitcoin, Ethereum, Ripple, Litecoin and Ethereum Classic declined in value, with certain digital currencies such as Stratis, Golem and Siacoin recording over 20 percent drop in their market cap.
Still, some analysts are predicting a short-term rise in bitcoin price amidst a significant rise in bitcoin hash rate, or computing power that fuels the bitcoin network and settles transactions.
Bitcoin & Markets, hosted by bitcoin researcher and economist Ansel Lindner, revealed that bitcoin hashrate jumped over 30 percent earlier this week, hinting the emergence of a breakout.
“Bitcoin hashrate jumped over 30% in the last 24 hours. This confirms the price breakout in my opinion. Something big is happening. New hashrate subsiding. Maybe a warning shot across the bow. Estimated difficulty adjustment now 11% and falling,” reported the Bitcoin & Markets research team.
Bitcoin’s hash power represents the network’s overall security. An increasing amount of computing power allocated into the bitcoin network makes the network that much more secure and more difficult to centralize.
Often, the rise in bitcoin’s hashrate is tied to major event or rise in confidence by miners and the community regarding a certain project. As Ivey Business School professor Jean-Philippe Vergne’s statement shared by BitGo engineer Jameson Lopp read:
“We found that the best predictor of a cryptocurrency’s exchange rate is the amount of developer activity around it.”
In January of 2017, Vergne published a research article entitled “Buzz Factor or Innovation Potential: What Explains Cryptocurrencies’ Returns?” on the high-quality peer-reviewed journal Plos One. The article of Vergne actively investigated into the justification of the value of cryptocurrencies and certain measures that can be utilized to predict the price trend of cryptocurrencies such as bitcoin.
Interestingly, Vergne and his team found that most mainstream media coverage on bitcoin negatively associated with returns, due to the extreme and inaccurate narratives certain media outlets have pushed throughout history.
“By contrast, we find that the buzz surrounding cryptocurrencies is negatively associated with returns after controlling for a variety of factors, such as supply growth and liquidity. Also interesting is our finding that a cryptocurrency’s association with fraudulent activity is not negatively associated with weekly returns—a result that further qualifies the media’s influence on cryptocurrencies,” read the article.
According to various analysts and experts including Vergne, three important key points to consider when evaluating the price trend of bitcoin are:
So far, mainstream media outlets have been offering bitcoin extensive and fair coverage on bitcoin, comparing bitcoin to reserve currencies such as the US dollar and precious metals including gold. An increasing number of mainstream media companies including CNBC and Wall Street Journal have begun to focus on reporting about the bitcoin industry, its companies, the growth of bitcoin, its user base and network.
On top of that, the hashrate of the bitcoin network has been rapidly increasing and developers have been collaborating to enable a viable scaling solution to further optimize the bitcoin network and lessen the cost of bitcoin transactions.
In consideration of the three abovementioned points, it seems evident that although bitcoin has been on a downward trend over the past few days, it is nearing a breakout.
Still, some community members had other theories to explain the sudden jump in bitcon’s hashrate. Some claimed that miners against BIP 148 allocated all of their hash rate into the bitcoin network to influence the activation of Segwit2x, an activation mechanism that would activate Segwit and guarantee the execution of a 2MB hard fork.
While that seems highly unlikely, it is important to consider any potential reasons that may influence the bitcoin network in any specific way.
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Last modified: July 2, 2020 8:19 PM UTC