Bitcoin dominance stagnates after FTX bankruptcy as investors pull out of BTC


  • Bitcoin dominance rate is steady at 40% in contrast to its record of sharp rises during times of stress in markets. 
  • On December 5, Bitcoin’s mining difficulty adjustment dropped 7.32% lower, making it the largest difficulty reduction in 2022.
  • Bitcoin price yielded nearly 5% gains over the last week as traders pulled BTC off exchanges. 

Bitcoin (BTC) dominance has stagnated lately as investors pull capital out of the crypto market. In previous cycles, Bitcoin’s dominance increased sharply during times of stress. However, several developments in November 2022 resulted in an exodus of investors from the market. Interestingly, the largest asset by market capitalization witnessed its highest mining difficulty reduction, 7.32%, on December 5. 

Also read: Goldman Sachs to increase crypto stake at deep discount, after FTX exchange collapse

Bitcoin mining difficulty drops 7.32%: here is what it means

Bitcoin, the largest crypto asset by market capitalization and popular as a safe haven for investors during times of geopolitical crisis, witnessed a large difficulty reduction. On December 5, at block height 766,080, Bitcoin’s mining difficulty adjustment dropped 7.32%. This marks the largest mining difficulty reduction in 2022. 

The current difficulty is approximately 34.24 trillion. It will remain at this point for the next two weeks or 2,016 blocks. Miners are powering off machines to survive the bear market as it eats into the profitability of mining Bitcoin. 

Bitcoin mining difficulty

Bitcoin mining difficulty

The recent adjustment is the biggest downward shift in mining difficulty since July 2021 when several miners went offline and migrated from China to the West. Prior to its mining ban, China was the world’s largest Bitcoin mining hub. 

Bitcoin’s mining difficulty self-adjusts according to the hashrate, or computing power that is online, in order to keep the time it takes to mine a BTC block roughly stable. When there are a large number of miners online, difficulty climbs and vice versa. 

In the second half of 2022, Bitcoin miners have witnessed a decline in their revenue with BTC’s price collapse. Electricity prices have increased, adding to the cost of mining Bitcoin, and thus profitability has been greatly reduced. 

Major producers like Core Scientific (CORZ) and Argo Blockchain (ARBK) have been hit by liquidity crunches, while Compute North filed for Chapter 11 bankruptcy. According to Luxor’s hashprice indicator, the profitability of mining has dropped by about 20% in the past month. 

Bitcoin dominance stagnates at 40%, many investors quit crypto

FTX exchange’s collapse and subsequent bankruptcy induced a bloodbath in crypto in November. Samuel Bankman-Fried’s Alameda Research, a trading firm, and 190 related entities along with FTX exchange filed for Chapter 11 bankruptcy. 

The exchange owes $3.1 billion to its creditors and currently remains insolvent. As the contagion spread to crypto lenders, other exchanges and crypto trading firms, many hedge funds are either on the verge of bankruptcy or already filed in November. 

The FTX exchange collapse is similar to a bank run in crypto, inducing fear among market participants and driving several investors out of the cryptocurrency ecosystem entirely. During black swan events and times of geopolitical crisis, investors would turn to Bitcoin as a safe haven, and this resulted in an increase in BTC dominance. 

However, this cycle the trend has changed, and Bitcoin dominance remained stagnant at 40%. In the past month, nearly $1.8 billion worth of Bitcoin left exchanges. Investors are turning to self-custody and pulling BTC off exchanges, while several others have turned their holdings to cash and exited their positions while incurring heavy losses. 

Bitcoin dominance

Bitcoin dominance

Wes Hansen, director of trading and operations at crypto fund Arca, told Coindesk, 

BTC has not outperformed the downside in recent months, so investors no longer view it as a safe haven. More broadly, the events of November 2022 have shaken the confidence of a lot of investors in this space. In prior cycles, investors would move into BTC to protect the downside when the market fell off. But because of the size of this year's scandals and their far-reaching impacts, a lot of investors aren't moving to BTC because they're just leaving the space entirely.

Bitcoin price prepares for upcoming reversal 

Bitcoin price yielded 20.3% losses for holders over the past month. An evaluation of the BTC price chart indicates that the asset cannot stay oversold for long. A reversal in Bitcoin price trend is around the corner. 

As seen in the Bitcoin price chart below, there have been trend reversals in 2016 and 2019. A similar pattern has emerged in the last few months of 2022. 

BTC/USD price index

BTC/USD price index

Gert van Lagen, a crypto analyst, is bullish on Bitcoin. The expert believes a breakout past $18,100 would validate the Wyckoff accumulation thesis. Wyckoff’s theory outlines key elements in price trend development that are marked by periods of accumulation and distribution. The technical analyst predicts an extended rally in Bitcoin. 

 


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended Content

Editors’ Picks

Ripple's XRP set sights on $1.100 following renewed investor interest

Ripple's XRP set sights on $1.100 following renewed investor interest

Ripple's XRP rallied nearly 20% on Tuesday, defying the correction seen in Bitcoin and Ethereum as investors seem to be flocking toward the remittance-based token. 

More Ripple News
Dogecoin Price Prediction: Could DOGE ETF spark new all-time high after 130% rise?

Dogecoin Price Prediction: Could DOGE ETF spark new all-time high after 130% rise?

Dogecoin rose over 15% on Tuesday as traders anticipate a price move toward the $1 threshold following Bloomberg analyst Eric Balchunas's post regarding a DOGE exchange-traded fund.

More Dogecoin News
Hedera's HBAR rallies nearly 20% as Canary Capital files for HBAR ETF

Hedera's HBAR rallies nearly 20% as Canary Capital files for HBAR ETF

Hedera's HBAR is up nearly 20% on Tuesday as Canary Capital submitted an S-1 registration to the US Securities & Exchange Commission for an HBAR exchange-traded fund.

More Hedera News
Ethereum Price Forecast: ETH down despite hype from Beam Chain unveil

Ethereum Price Forecast: ETH down despite hype from Beam Chain unveil

Ethereum is down 1% on Tuesday despite developer Justin Drake proposing the Beam Chain, a new consensus layer that aims to ship a series of changes that will fast-track the Main chain's roadmap to faster block times and quantum resistance.

More Ethereum News
Bitcoin: Further upside likely after hitting new all-time high

Bitcoin: Further upside likely after hitting new all-time high

Bitcoin hit a fresh high of $76,849 on Thursday as crypto-friendly candidate Donald Trump won the US presidential election. Institutional demand returned with the highest single-day inflow on Thursday since the ETFs’ launch in January.

Read full analysis
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

BTC

ETH

XRP