As many know China has enforced its regulations more stringently recently & clamped down on Bitcoin miners. This has been enforced in Sichuan, ordering 90% of miners to close down.
This may seem a brutal blow to security structure of $BTC but it isn’t. The hash-rate of Bitcoin dropped to much lower levels of course once Chinese miners starting closing down mining equipment. But it’s important to note 2 things:
1). Bitcoin protocol has a built in difficulty adjustments to incentivise miners. Every 2 weeks the network adjusts if it becomes easier (requires less hash power to mine a block) or becomes difficult (requires more power to mine a block). So as mining pools go offline temporarily, this gets picked up by other mining pools elsewhere & security of the blockchain is not compromised.
2). The majority of Miners shut down in China have already started moving mining equipment to other countries, mainly Kazakhstan & North America.
This to me is a major mistake for China & I think there economy will pay for this later. But it shows how anti fragile Bitcoin is & decentralized nature. No one country controls Bitcoin. China was used as stick to beat Bitcoin with by critics saying it was controlled by Chinese miners or using dirty energy to mine. Bitcoin can be hit with a blow & miners just spread themselves out geographically. After all mining is a battle of incentives i.e. who can mine in the cheapest way with least regulatory barriers. We’re also seeing mining increasingly using renewable energy sources & commitment from the newly formed Bitcoin Mining Council so it may be some short term pain, but to Bitcoin’s eventual gain.
You may be wondering if there is a difficulty adjustment & Bitcoin is secure than why did the price go down? Well mostly, its down to miners selling off increased BTC to fund moves to other locations (CAPEX) & market fear (when sentiments low short interest increases & stop losses get triggered)
𝗛𝗮𝘀 𝗧𝗵𝗲 𝗕𝗲𝗮𝗿 𝗠𝗮𝗿𝗸𝗲𝘁 𝗦𝘁𝗮𝗿𝘁𝗲𝗱?
This is a question many have been wondering. Its a difficult question to answer because unlike the stock market which usually defines a bear market as dropping by 20% for a sustained period of time, its hard to translate this definition into Bitcoin. We regularly in Crypto see swings of 20% during bull markets. This correction has been larger (50%+ from high) but it came on the back of many months of positive growth which rarely had a pullback & both the China crack downs & environmental FUD weighed on sentiment. I tend to prefer to define a bear market/Crypto winter as a period of lack of interest & lowering of Crypto activity. All the metrics point to the fact that we’re still in a bull market (onchain metrics, media interest & billionaires advocation). If we combine with the macro economic backdrop & roaring inflation, BTC is still in my opinion primed for a summer/autumn 2021 breakout. We have some momentum to gain back definitely & it may be a rocky path but forces are strong.
I believe we’re still in an accumulation zone between $30-$40k, which we’ve been in for over a month. It did break briefly under this for a short time yesterday but bounced back quickly so there is strong support. We may stay in this range for a short while.
I’ll continue with my secondary strategy of trading any increased volatility in Crypto to soften the effects of these difficult periods.
I understand some that copied in the last 2 months may be down. These periods do happen, especially when have Crypto in your portfolio. You need to remember the reasons why you have conviction in an asset class in the first place & remain patient. The key is to not to get too high when you’re winning or too low when you’re losing.
As you know my strategy is to trim Crypto exposure the further we progress in the cycle which I’ve been disciplined with. But when trimming positions, I try to sell into strength rather than capitulation.
If I turn out to be wrong & we do enter a sustained prolonged bear market, I will trim my Crypto positions further but I don’t believe we are at that stage and still bullish. I’ll keep you updated if my opinion changes. That being said, I’ve been further increasing my stock positions & diversification.
Please stay patient & remember what ”𝗗𝗼𝗲𝘀𝗻’𝘁 𝗞𝗶𝗹𝗹 𝗖𝗿𝘆𝗽𝘁𝗼, 𝗠𝗮𝗸𝗲𝘀 𝗶𝘁 𝗦𝘁𝗿𝗼𝗻𝗴𝗲𝗿