Cryptocurrency Impact on the Market: Understanding the Deep and Bull Run for Beginners
[9th issue]

Introduction

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Cryptocurrencies, like Bitcoin and Ethereum, have taken the world by storm. While many people have heard about them, understanding their market behavior can be tricky. Two key terms often used are "the deep" and "bull run." Let’s break these down and explore how cryptocurrency mining impacts these market phases.

What is Cryptocurrency Mining?

Before diving into market phases, let's understand what cryptocurrency mining is. Think of cryptocurrency mining as digging for digital gold. Miners use powerful computers to solve complex mathematical problems. When they solve these problems, they validate transactions on the cryptocurrency network and add them to the blockchain (a digital ledger). As a reward for their work, miners earn new cryptocurrency coins.

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The Deep: Market Downturns

"The deep" refers to significant drops or downturns in the cryptocurrency market. Prices of cryptocurrencies fall, often dramatically, leading to panic and selling among investors.

Image from Business-Times

Examples of Past Deeps:

1. 2018 Crypto Crash:
After reaching an all-time high in late 2017, Bitcoin’s price plummeted from nearly $20,000 in December 2017 to around $3,200 in December 2018.
2. Mid-2021 Correction:
Bitcoin dropped from about $63,000 in April 2021 to around $30,000 by July 2021.

Bull Run: Market Upturns

A "bull run" is the opposite of the deep. It’s when the cryptocurrency market experiences a sustained increase in prices. Investors are optimistic, and buying activity increases, pushing prices even higher.

Examples of Past Bull Runs:

1. Late 2017 Bull Run:
Bitcoin surged from around $1,000 at the beginning of 2017 to nearly $20,000 by December 2017.
2. Late 2020 to Early 2021 Bull Run:
Bitcoin rose from about $10,000 in September 2020 to over $60,000 by April 2021.

How Does Mining Impact These Phases?

Mining and The Deep

1. Cost of Mining:
Mining cryptocurrencies is expensive. It requires high-powered computers and lots of electricity. When prices fall into the deep, the revenue miners earn may not cover their costs. As a result, some miners might stop mining, which can slow down the network.
2. Selling Pressure:
During market downturns, miners might sell their cryptocurrency holdings to cover their operational costs, increasing selling pressure and pushing prices down further.

Mining and Bull Runs

1. Increased Activity:
During a bull run, mining becomes more profitable. Higher prices mean higher rewards for miners. This can lead to more people joining the mining activity, strengthening the network.
2. Reduced Selling Pressure:
As prices rise, miners might hold onto their coins, expecting even higher prices. This can reduce the selling pressure and contribute to further price increases.

Real-Life Example: Bitcoin Halving

An event known as "halving" has a significant impact on both mining and market phases. Bitcoin halving occurs approximately every four years, cutting the reward miners receive for solving a block in half. This reduces the supply of new Bitcoins entering the market.

Impact on Market:

- Pre-Halving:
Anticipation of reduced supply can lead to price increases, contributing to a bull run.
- Post-Halving:
The reduced reward can make mining less profitable if the price doesn’t increase, potentially leading to a market correction or deep.

Conclusion

Cryptocurrency mining plays a crucial role in the health and behavior of the cryptocurrency market. By understanding how mining affects both the deep and bull runs, investors can better navigate the volatile world of cryptocurrencies. While the deep can be daunting, and bull runs exhilarating, knowing the underlying factors can help make sense of these market cycles.

References

1. **Bitcoin 2018 Crash**:
- Chowdhury, A. (2018). "Bitcoin's 2018 Crash: What Happened And Why?". [Forbes](https://www.forbes.com/sites/akhilchowdhury/2018/01/17/bitcoins-2018-crash-what-happened-and-why/?sh=39ea907c14c2).

2. **2021 Market Correction**:
- Sigalos, M. (2021). "Bitcoin Plunges More Than 50% from Its All-Time High". [CNBC](https://www.cnbc.com/2021/07/20/bitcoin-drops-below-30000-falls-to-lowest-level-since-june.html).

3. **Late 2017 Bull Run**:
- Roose, K. (2018). "How Bitcoin Went Mainstream". [The New York Times](https://www.nytimes.com/2018/02/23/technology/bitcoin-mainstream.html).

4. **2020-2021 Bull Run**:
- Browne, R. (2021). "Bitcoin Hits New Record High Above $63,000 Ahead of Coinbase Listing". [CNBC](https://www.cnbc.com/2021/04/13/bitcoin-btc-price-hits-new-record-high-above-63000-ahead-of-coinbase-listing.html).

5. **Bitcoin Halving**:
- Hougan, M. (2020). "Bitcoin Halving: What Is It And Why Does It Matter?". [Forbes](https://www.forbes.com/sites/matthougan/2020/05/11/bitcoin-halving-what-is-it-and-why-does-it-matter/?sh=44e450bd66d7).

6. **Impact of Mining on Cryptocurrency Prices**:
- Hileman, G., & Rauchs, M. (2017). "Global Cryptocurrency Benchmarking Study". [Cambridge Centre for Alternative Finance](https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/global-cryptocurrency/#.YN_UHZNKj0p).

7. **Understanding Market Cycles**:
- Hayes, A. (2021). "Bitcoin Price Cycle: 4-Year Cycle and Halving Analysis". [Investopedia](https://www.investopedia.com/bitcoin-halving-4843769).