The Bitcoin difficulty is a number which regulates the time that it takes for miners to add new transaction blocks to a blockchain. A higher difficulty number suggests that the competition for block rewards is higher, while a lower number suggests the opposite by incentivizing more miners to participate.
The value for the Bitcoin difficulty is updated every two weeks. This is done in order to make sure that the average time it takes to add a new block remains 10 minutes. The mechanism in place stabilizes itself, ensuring that that the security of the network is sufficient at all times — even when there is a significant drop in price.
Since the 5.1 trillion bottom in December 2018, when the Bitcoin price was at $3100, the difficulty has gradually increased throughout the year. It reached an all-time high of 13.7 trillion in October and has currently decreased to 12.7 trillion.
Twitter account @100trillionUSD stated that the next difficulty adjustment is expected to fall on November 21.
Chart shows 7 years of diff adjustments, and what a red dot (positive diff adjustment) after a blue dot (negative diff adjustment) means for price. pic.twitter.com/WkxP1mMc7q
— PlanB (@100trillionUSD) November 12, 2019
The next difficulty change is predicted to be between +1.8% – +3.4%, making this a positive difficulty adjustment. Additionally, the tweet alluded to the effects of a positive adjustment following a negative adjustment to the Bitcoin difficulty.
A difficulty adjustment is made every 2016 blocks, based on the time it took to mine the previous blocks. If the time required for the blocks to be mined is more than two weeks, the difficulty is lowered and vice versa.
The current dot (blue) had a negative difficulty adjustment. Since the next dot is expected to be a positive adjustment (red), we can look to the chart to see what occurred the previous times a blue dot was followed by a red one.
In the chart above, a blue dot was succeeded by a red dot four times:
- January 2013
- January 2015
- August 2016
- December 2018.
Every single time, a long-term upward move for Bitcoin ensued. These moves had the magnitudes of:
- $14 – $1177: January 2013
- $230- $783: January 2015
- $540- $20,000: August 2016
- $3200- $13,788: December 2018
Therefore, if the same is to happen next week, we could see a similar upward move transpire and the Bitcoin price reach a new all-time high.
Disclaimer: This article is not trading advice and should not be construed as such. Always consult a trained financial professional before investing in cryptocurrencies, as the market is particularly volatile.
Images courtesy of TradingView, Twitter.
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