Bitcoin Could Be Low Due To Tax Sale And Higher Mining Difficulty

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China cracked down on all crypto mining in the country earlier this year, effectively forcing all Bitcoin miners (CCC: BTC-USD) to leave the country. While China was the first country in the world to mine Bitcoin, it now has virtually no income. As a result, Bitcoin took a pretty solid hit in September.

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But since then Bitcoin mining and the BTC-USD price have rebounded as if nothing had happened in China. For example, Cryptoslate recently reported that the hash rate and total amount of money made from Bitcoin mining are now at levels prior to the crackdown in China.

In addition, the price of BIT-USD has also recovered. For example, earlier in April and then again in September, Chinese authorities made any mining of Bitcoin in the country illegal. The BIT-USD price weakened and fell to a low of $ 29,807 on July 20. But today, December 3, it rallied to $ 56,984.34, after hitting an all-time high of $ 68,789.63 on November 10.

Where is it with BTC-USD?

Now, many reports are emerging that Bitcoin miners are on the rise. This is especially true as many Chinese operators have set up in Russia, the United States and Kazakhstan.

According to Cryptoslate magazine and Coin Metrics, mining difficulties during troughs after the Chinese ban have fallen to 84.79 exahashs per second (EH / s). This means that many Bitcoin miners in the United States and elsewhere have been able to produce much larger amounts of Bitcoin in their mining operations.

But now the hashrate is so far back to 156.6 EH / s. It even hit 167.18 EH / s on November 17, according to Cryptoslate. In fact, Cryptoslate cites a November report from Kraken indicating that hashrate could increase dramatically.

As the hashrate and difficulty of mining increases, it takes more time and more electricity to mine the same amount of Bitcoin tokens as before. It could reduce profitability unless they increase their scale appropriately.

But something strange is happening.

Cryptoslate reports that miners “earn almost the same amount of money they made before the ban.” However, Cryptoslate does not indicate where they got this data or if they have a study supporting this conclusion.

Yet Bitcoin Magazine reports that mining revenues “have increased over the past five months, have already returned to pre-ban levels and are near their previous record.”

It is not clear from this preliminary report exactly how the miners managed to increase their income so dramatically in such a short time. Bitcoin Magazine reports an increase in investments by U.S. miners and an increase in interest in Bitcoin mining by state governments.

What this means for Bitcoin in the future

Now that the mining difficulty is higher than before, Bitcoin miners could make windfall profits. But that might not last long as the competition starts to heat up. This could be one of the reasons why BTC-USD recently peaked and drifted lower.

For example, Bitcoin Magazine reports that there has been a 65.8% increase in mining difficulties since July, based on the Kraken Intelligence report.

More likely, the recent drop in the BTC-USD price is likely due to the tax loss selling before year end. This trend is often seen with stocks and the same activity is probably happening with cryptos now.

After all, Bitcoin finished last year at $ 29,374. This means that to date, the price of BTC-USD has risen 94% since the start of the year on December 3. This is an extraordinary gain. Some people may be tempted to take profits, especially some Bitcoin miners.

Therefore, many patient investors may want to take their time before resuming a new position in Bitcoin. The likelihood of a further decline is quite high both due to the higher Bitcoin difficulty rate and tax-related sales. This means that the more cautious investors will wait until the end of the year before plunging back into Bitcoin.

As of the publication date, Mark R. Hake does not hold any position (direct or indirect) in any of the titles mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.

Mark Hake writes about personal finance at mrhake.medium.com and runs the Total Yield Value Guide which you can view here.

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