This “Feedback Loop” Shows Why Bitcoin Prices Are Only Going Up

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Bitcoin prices have taken a beating over the last month.

Since Nov. 6, the cryptocurrency’s price has fallen more than 43% as investors fled the coin’s recent volatility.

bitcoin
The recent drop has prompted a flurry of doomsday prophesies, with some analysts going as far to say that the popular cryptocurrency has entered a “death spiral.”

They couldn’t be more wrong.

You see, bitcoin’s recent draw down isn’t a sign of systematic failure – it’s actually a clear sign that the cryptocurrency is working exactly as it should.

In fact, bitcoin’s fall suggests that the next “crypto gold rush” is right around the corner…

The Bitcoin Bear Argument Is Full of Holes

Bitcoin bears argue the relationship between bitcoin prices and the cost of “mining” a bitcoin is setting the coin up for tremendous losses.

Bitcoin “miners” earn bitcoins in exchange for the processing power needed to update the coin’s digital ledger. Thus, mining is essential to maintaining bitcoin’s decentralized network.

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However, the process is anything but cheap. According to recent estimates by JP Morgan (NYSE: JP) the cost of mining a single bitcoin is around $5,000.

But mining Bitcoin has traditionally paid off despite the costs.

For example, a miner who sold bitcoin in December 2017 could not only cover the cost of mining the coin, but also net a profit of over $11,000 per coin.

That’s changed since bitcoin prices fell.

Today, with bitcoin prices hovering around $3,800, bitcoin miners face a $1,200 loss just from mining the coin.

And critics argue that could doom bitcoin.

Bitcoin bears reason that because the cost of mining is apparently higher than the price of the coin, bitcoin miners have little reason to keep mining the coin.

Without that profit incentive, miners will pull out of the bitcoin market, draining Bitcoin’s ledger system of the processing power needed to keep the cryptocurrency network online.

As a result, Bitcoin will enter a “death spiral” that will drive the coin’s value to zero.

One hit piece recently published by Marketwatch sums this point up nicely.

According to the article, “the number of miners cannot fall below a certain level, because without the miners providing the computing power to maintain the ledger, the bitcoin blockchain will not remain viable.”

However, this same hit piece also highlights a critical point that undermines the bearish argument:

“The cost of mining bitcoin is not a fixed-dollar amount. There is a feedback mechanism in mining any commodity that applies to Bitcoin: As the price of bitcoin increases, new miners enter the market, increasing the effort required to mine a bitcoin, as its reward will be shared among a larger group of miners. Similarly, when the price of Bitcoin falls and miners exit, the cost of mining decreases.”

By this logic, when mining costs fall below Bitcoin’s current market price, more miners will enter the market to profit from the change.

In short, the decline in mining competition lowers the cost of mining Bitcoin.

This is good news for Bitcoin. It puts the cryptocurrency and its network on a flexible feedback loop that can regulate the size of the coin’s network, preventing miners from fleeing.

Already, the Bitcoin ledger network has shrunk in size relative to the coin price.

Since August, the Bitcoin ledger’s hash rate – the number of mining computations preformed each second – has fallen by roughly 36%. Meanwhile, Bitcoin’s market price has fallen a comparable 43%.

In other words, the cost of mining Bitcoin has fallen with the price of the coin. As a result, there’s still plenty of profit incentive for miners to stick around and support the Bitcoin network.

And that’s great news for Bitcoin investors.

It’s also a good lesson in treating the Bitcoin bears with skepticism.

That why we’ve developed a Bitcoin investment method that goes against the grain – one that could net you a fortune…

See Why Bitcoin Is Far from Dead (and How It Could Make You a Millionaire)

At our recent Bitcoin 20x Summit, we uncovered information that left many folks stunned – and re-evaluating everything they thought they knew about the crypto market.

You see, while Wall Street and Fortune 500 companies continue to badmouth Bitcoin, they’re diving headfirst into this craze… and I’d bet not one in 10,000 people knows the reason behind it.

Go here to see why Bitcoin’s not dead… and how it could make you millions.

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