Choppy Week for Crypto, Bitcoin Mining Difficulty Hits Fresh ATH

• State Street and Galaxy launch new crypto ETFs
• Harris edges out Trump in debate, Polymarket bets indicate
• Bitcoin mining difficulty hits record high after hash rate surge

A volatile week for crypto, economic data and debate drove market moves

Crypto markets had a choppy week, with the total market capitalization remaining above $2 trillion and bitcoin dominance hovering around 56%. Among the blue chips, bitcoin declined by 1.1% from the previous week, while ether fell by 4.5%. In the US-listed spot-only ETF space, bitcoin ETFs experienced $316.6 million in net outflows over the last seven trading days, and ether ETFs saw $85.4 million in net outflows during the same period. State Street Global Advisors and Galaxy Asset Management are launching a trio of cryptocurrency focussed ETFs even as investors pull back from spot-only ETFs.

Last Friday, most risk assets sold off following weak job reports, and crypto markets followed suit with even higher volatility. Bitcoin dropped to the $52K range. While the data showed slower economic growth, it still pointed to growth overall. The market reaction seemed like a knee-jerk move, possibly to reassess the Fed’s stance. As investors took time to digest the data, they realized there were no immediate signals to trade further ahead of the upcoming presidential debate and CPI report. This led to short covering early in the week, driving a rebound. During Tuesday’s US presidential debate, Vice President Kamala Harris appeared to outperform former President Donald Trump, according to prediction bets on Polymarket, though crypto policy wasn’t discussed.

Despite Harris' debate performance, both candidates are essentially neck-and-neck in Polymarket’s contract for who will win the election, with Harris' odds seeing a slight boost during the debate. CPI data showed core inflation rising faster than expected, reinforcing bets on potential rate cuts. Bitcoin mirrored the movement of tech stocks, as it has done in previous periods of liquidity injections.

Bitcoin mining difficulty hits record high as hash rate surges

On Wednesday, Bitcoin’s mining difficulty reached a new record, driven by a surge in the seven-day moving average hash rate over the past weekend. The difficulty was adjusted at block 860,832, setting a new high of 92.67 trillion, surpassing the previous record of 90.67 trillion from late July, according to data from blockchain explorer Mempool. While not measured in specific units, mining difficulty represents the relative challenge of mining a new block compared to the lowest possible difficulty. It adjusts automatically every 2016 blocks, or roughly every two weeks, ensuring that new blocks are added to the blockchain approximately every 10 minutes, regardless of how many miners are involved. When more miners participate, the difficulty increases, demanding greater computational resources and energy to solve the next block. Conversely, when fewer miners are active, the difficulty decreases, making block discovery easier.

The network's hash rate, which indicates the total computational power miners contribute, reached a record seven-day moving average of 693.84 EH/s on Sunday, as reported by The Block’s dashboard. Following Bitcoin’s fourth halving event on April 20, which cut block rewards from 6.25 BTC to 3.125 BTC, the hash rate initially declined. It bottomed out at 550.25 EH/s on June 28, but has since started to climb as miners increase their computational efforts. The halving event significantly reduced miners' earnings, with revenues dropping from a seven-day moving average peak of $72.4 million on the halving day, to between $25 and $30 million. This pushes less efficient miners out of the market.

This reduction in revenue has also led Bitcoin’s hash price—the expected earnings from 1 TH/s of hash rate per day—to fall to a record low of $0.04 this month. As the market consolidates, with larger US-based public miners deploying new equipment and expanding their operations, the network’s overall hash rate is climbing again.

Macro pulse 

Among TradFi assets, US equities rose by 0.6% over the past week, driven by a rally in technology stocks that helped the market recover from post-CPI losses. While the US headline CPI for August aligned with forecasts, the core CPI exceeded expectations. At the time of writing CME FedWatch data indicates an 87% probability of a 25 basis point rate cut by the Fed in next week’s FOMC meeting. Oil futures declined by 2.7% this week due to a weak demand outlook, with OPEC+ revising its demand forecast downward for this year and 2025 on Tuesday, which overshadowed concerns over supply disruptions from Tropical Storm Francine. Elsewhere, the US Dollar Index edged up by 0.4%, the 10-year US Treasury yield declined by 10 basis points, and the Gold & Silver Index gained 1.5% week-over-week.

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*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on September 12, 2024 

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