The world of cryptocurrency mining has been experiencing significant challenges lately, and the latest development may exacerbate the situation. According to recent data from Coinwarz, the difficulty of mining bitcoin has reached an all-time high of 92.6 terahashes, a staggering increase of over 10% since early July. This surge in mining difficulty could put additional pressure on miners’ profitability due to higher operational costs.
The Consequences of Higher Mining Difficulty
As we delve deeper into the world of cryptocurrency mining, it’s essential to understand the implications of this increased mining difficulty. The computational power required to bring new bitcoin (BTC) into existence has surged to a fresh lifetime high, which could spell trouble for miners and potentially impact prices.
How Mining Difficulty is Calculated
Mining difficulty, denoted by terahashes, measures the computation power used to process blocks on a proof-of-work blockchain, such as bitcoin. This metric gives an idea of how time-consuming it is to find the right hash for each block. Entities referred to as miners use extensive computing systems to mine blocks and are rewarded with bitcoin, which they sell on the open market to cover costs and turn a profit.
The Network Adjustment Mechanism
The network automatically adjusts the difficulty of mining new blocks to the blockchain every 2,016 blocks, or roughly every two weeks. This adjustment is based on the number of miners and their combined hashpower, which measures how much computing power a network uses. The next bitcoin difficulty adjustment is estimated to occur on Sept. 27, decreasing the bitcoin mining difficulty from 92.67 T to 77.12 T.
The Impact on Miners’ Profitability
A bump in mining difficulty can dampen profits for bitcoin mining companies as costs required to keep operations going significantly increase – straining an already difficult environment for such firms. Revenue has been under pressure for many mining firms post-halving, and the recent selling pressure is primarily from trading stopouts and ETF outflows.
Expert Insights on Mining Difficulty and Bitcoin Price
Some traders say bitcoin price action could be impacted based on general market conditions and how miners deal with the difficulty increase. However, there is no clear cause-and-effect relation between mining difficulty and BTC price.
"There is no clear cause-and-effect relation between mining difficulty and BTC price. Higher mining difficulty will indeed cause stress on the miners’ but how they react to such stress is up to individual miners," Peter Chung, head of research at Presto, said in a Telegram message.
Miners’ Reaction to Increased Mining Difficulty
Over the long-run, miners deal with rising difficulty levels by upgrading equipment and/or pursuing other cost rationalization measures (e.g., seeking cheaper electricity costs). Historically, when you average it out, BTC price showed no meaningful correlation with this particular variable.
"When you average it out, BTC price showed no meaningful correlation with this particular variable," Chung said.
Potential Selling Pressure
However, Presto research analyst Min Jung stated that selling pressure could be on the cards based on overall market sentiment. If equities weaken and the overall financial markets show signs of weakness, it could lead to selling pressure, driven by the belief that it is better to take a loss now than later.
"If equities weaken and the overall financial markets show signs of weakness, it could lead to selling pressure, driven by the belief that it is better to take a loss now than later," Jung said in a message.
Conclusion
The difficulty of mining bitcoin has reached an all-time high of 92.6 terahashes, increasing by over 10% since early July. This surge in mining difficulty could put additional pressure on miners’ profitability due to higher operational costs. While some experts say there is no direct correlation between mining difficulty and bitcoin price, others believe that selling pressure could be on the cards based on overall market sentiment.
What’s Next for Bitcoin Miners?
As the next bitcoin difficulty adjustment approaches (estimated to occur on Sept. 27), miners will need to adapt to the new challenges presented by increased mining difficulty. With revenue under pressure and the potential for selling pressure, it remains to be seen how individual miners will react to these changes.
Sources:
- Coinwarz
- SOFA
- Presto
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