How the cost of the largest cryptocurrencies by capitalization changed in the summer periods of 2020 and 2021 and what does the complexity of the bitcoin network have to do with it.
One of the varieties of the analysis of price movements of bitcoin and altcoins is an analysis based on certain time periods. This type of analysis includes forecasts and analytics of the dynamics of asset prices associated with major holidays: Chinese New Year, Christmas in the USA, and others. Comparative analyzes of the market in certain months in different years are also popular. In this article, we will talk about the dynamics of the sector in the summer in the years after the start of the pandemic, the possible connection between price and network complexity, as well as what we can expect from the market this summer.
Bitcoin in Summer
In the first and second summers after the start of the pandemic, the flagship of the sector showed a positive trend. At the same time, both in 2020 and in 2021, the price fell slightly or consolidated in June, after which the asset showed rapid growth in the next two summer months. Thus, the peak of bitcoin price growth in July and August 2020 was more than 35%, and July and August of the summer of 2021 showed an even greater increase, amounting to a peak of more than 74%.
The approaching summer period of the current year has many similarities with the summer of 2021 on weekly and monthly timeframes. Just like in 2021, the asset is now approaching the summer months after several months of price decline, and just like in 2021, bitcoin is now trading close to the zone of historical interest of buyers in the region of $30 thousand per BTC. In 2021, sellers also fought to break through this range, but were stopped by buyers in July near the $29k per BTC mark, after which the price reversed, showing the rapid growth described above.
Despite the similarity of the charts and price ranges, the trading volumes can make a significant difference in the picture for the asset. For example, during the months of a rapid decline in the price of an asset, preceding the growth in 2021, users could observe relatively large trading volumes. The total volume of BTC spot trading in May 2021 significantly exceeded all other months of the year and amounted to an impressive $1.925 trillion. The average daily trading volume for that month was over $62 billion. A similar pattern can be seen in the derivatives markets.
Large trading volumes at times when sellers predominate are often regarded by recognized experts in technical analysis (for example: The Chart Guys and Data Dash) as a potential bullish signal, because most of those who want to sell an bitcoin have sold it and will not interfere with their sales in the price growth in the future. The question whether we will see trading on large volumes at the end of the current months of decline also this year is still open.
Ethereum in Summer
The movement of the second asset of the crypto-asset sector coincided with the movement of bitcoin in the summer of 2020 and 2021, however, the growth of ether was even more impressive. More than 115% at the peak of ETH showed in July and August 2020 and more than 130% in the same months in 2021. The pre-growth months, May and June, were also marked by high volume.
Was it possible to get even greater profitability by investing not in ETH itself, but in projects of the Ethereum ecosystem? In most cases, no. The largest DeFi protocols of the network, Uniswap (UNI) and Aave (AAVE), showed similar growth to ETH during the summer months, without overtaking the system coin itself. Some ecosystem projects, such as Curve (CRV) and Yearn Finance (YFI), showed less growth than the ether itself, with more risky investments in younger and smaller assets.
Correlation of price with network complexity
Graphs of mining difficulty for BTC and ETH coins are also sometimes used to find suitable points to open positions on assets. One of the possible signals to buy an asset is the beginning of hashrate recovery after a significant drop. However, on the eve of summer, the current year demonstrates a completely different hash rate dynamics from previous years. From May 9 to June 28, 2021, Bitcoin mining difficulty dropped from 191 EH/s to 69 EH/s, showing a record percentage decline in hashrate in recent years.
Thus, the significant increase in the price of bitcoin, described in the first paragraph, coincided with a smooth and confident recovery of the hash rate after the fall – by the end of the summer of 2021, the network difficulty was already 132 Eh / s, continuing to constantly increase until today. At the moment, the hashrate is close to the historical maximum set on May 2 this year at around 250 EH / s, and on May 14 is 231 EH / s.
A similar relationship can be traced for Ethereum. The growth described in the second paragraph in July and August 2021 corresponded to the beginning of a recovery in the difficulty of mining a coin after a record fall in recent years. The drop that began on June 1 and lasted until June 29, 2021 reduced network difficulty from 594 TH/s to 470 TH/s. By the end of the summer of 2021, the hashrate not only recovered, but also rose above the point where the fall began, amounting to 654 TH/s by August 31. Like Bitcoin, the complexity of the Ethereum network has only gradually increased from that time until today, being at the moment close to the historical maximum of 1.11 PH, which was set on May 9, 2022.