The best time to buy bitcoin can be calculated by analyzing the mining difficulty of the blockchain, say specialists from the investment firm Wobull. Experts have developed a new metric based on mining difficulty values that allows predicting the bullish or bearish Bitcoin markets.

The tool was christened Bitcoin Difficulty Ribbon, translated into Spanish as "Cinta de Difficulty de Bitcoin," and was <a href="https://woobull.com/introducing-the-difficulty-ribbon-the-best-times-to-buy-bitcoin/">presented</a> to the market this Thursday, August 8th. The metric uses the average values given by the Bitcoin blockchain concerning its mining difficulty. In this way, it generates a tape that is compressed or marks negative values at the most suitable moment to buy Bitcoin.

<img class="aligncenter" src="https://woobull.com/content/images/2019/08/image-1.png" />

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The Bitcoin blockchain has a mechanism that every 2,016 blocks readjust the difficulty of the network in proportion to the number of active miners. The difficulty of mining is proportionally related to the hash rate, a value that exemplifies the number of miners who are confirming transactions on the network. The more miners, the more difficult it is to ensure the right incentives and stability of Bitcoin.

Wobull specialists propose that the crypto-mining industry has an impact on the price of Bitcoin and other crypto-mint coins. Vinny Lingham was the first to notice the pattern in 2014, publishing it in an <a href="https://vinnylingham.com/finding-equilibrium-searching-for-the-true-value-of-a-bitcoin-ba5f3fcce103">article</a> about <a href="https://www.cryptoknowmics.com/crypto/bitcoin-price-a-technical-analysis-of-the-crypto-market-8719/">how Bitcoin finds balance in its prices</a>. The development team notes that they support Lingham's theory with more than five years of data from Bitcoin's blockchain.
<h2 style="text-align: center"><strong>How does it work?</strong></h2>
Experts stress that the difficulty of mining the network is related to the price of Bitcoin and therefore, an exchange rate can be calculated with this data. This raises an important question: What is the relationship between mining, network difficulty, and market price?

The developers of Bitcoin Difficulty Ribbon explain that as miners generate new crypto coins confirming transactions, they sell the rewards earned for their network activities in order to pay production costs. In other words, the miners increase Bitcoin's supply in the market, which produces a downward trend in prices.

There is usually a period when the Bitcoin network has many active miners confirming transactions. Because the hash rate increases, the mining difficulty is readjusted, and it is more challenging to mine the network. For smaller mining groups (with weaker devices) it is not profitable in the long run to mine the Bitcoin network with an excellent mining difficulty by ceasing its activities. Also, independent miners or small groups must sell more coins to sustain their activities. A practice that forces them to capitulate as the months go by.

The large pools remain active when the difficulty increases since they have new generation miners and do not need to sell so much BTC to sustain their activities. The desertion of miners, in turn, causes a decrease in the hash rate. When the difficulty of mining is readjusted about the new rate of miners, the price of Bitcoin rises because there is not as much supply in the market.
<h2 style="text-align: center"><strong>Cyclical, Newspaper or Unexpected?</strong></h2>
The investment firm in cryptocurrencies, Wobull, stresses that this market behavior is cyclical. As the price rises and the difficulty decreases, mining is once again profitable for small mining groups. The entry of these new competitors increases the hash rate of the network with the months again. Two thousand sixteen blocks later will increase the difficulty of mining, activating the downward trend in prices again.

Experts point out that the reduction of the reward in the Bitcoin blockchain, an event known as Halving, can also influence the downward trend in prices. According to Wobull, it can be concluded that when low mining difficulty or a halving occurs, it may be a convenient time to buy bitcoin.

It is also important to note that news about the ecosystem, new investments, adoption, and other events outside the market can also affect the price of crypto coins. Therefore, although Wobull's theory has a reliable and credible basis, the volatility of the cryptocurrency market must be taken into account.

Mining difficulty may indicate when is the best time to buy bitcoin

I am an industrial engineer specializing in blockchain. Enthusiast of cryptocurrencies and writing the latest news regarding the Crypto world.

Mining difficulty may indicate when is the best time to buy bitcoin

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