Miners are fast powering off their machines in the face of a brutal bear market that eats into profits as the difficulty of mining a bitcoin block has fallen by 7.32%.
The bitcoin mining difficulty refers to the degree of difficulty involved in identifying new bitcoin blocks through mining. In simple ways, it indicates how many miners in the network are competing with each other to ensure the steady process of identifying every new Bitcoin.
Block height 766,080 represents the largest downward adjustment since July 2021, data sourced from mining pool BTC.com reveals. This was the time when miners began to leave the network after China cracked down Crypto mining industry. Before China came down heavily on Crypto mining, the country was at the time the largest bitcoin mining hub in the world.
The mining difficulty is adjusted automatically according to the computing power or hashrate that’s online to maintain the time it takes for a bitcoin block to mine. The lesser the difficulty, the fewer miners there are.
The bitcoin miners have been caught between the constant decline in bitcoin price and falling revenues. On the other hand, the high rate of electricity – which increases cost – besides the increasing price of hardware and networking equipment has made the situation even more worrisome. The depth of the concerning challenge can be well understood from the fact that major producers Core Scientific and Argo Blockchain are facing liquidity problems, while Compute North has filed for Chapter 11 bankruptcy.
This situation has been made worse by the new miners jumping into the business with more efficient machines. This has driven the hashrate higher. Between the beginning of August and the Nov. 21 last adjustment, the difficulty and hashrate both increased by around one-third.
Now, the reality of crypto winter seems to be catching up with the industry. Bitcoin miners are shutting down their machines. As profitability suffered, the hashrate began to fall around mid-November. However, it is still much higher than the levels after China’s crackdown.
According to Luxor’s hashprice indicator, mining profitability has fallen by around 20% over the past month.
Analyst at Luxor Jaran Mellerud has brought the focus on the element that is making bitcoin minors quite concerned. Even miners who use energy-efficient machines such as the Antminer S19j Pro must pay electricity prices lower than 8 U.S. cents per kWh in these low profitability levels. Mellerud stated that miners pay between 7 and 8 cents per Kilowatt Hour (kWh) despite the network’s average energy cost of 5 cents per Kilowatt Hour (kWh).
In addition, natural gas prices and energy prices have both increased over the past few weeks. Mellerud stated that miners who have been buying spot electricity and are close to breakeven see the rise in electricity prices enough to turn their operations into cash flow-negative territory.
But, one must not relate the lower hashrate and network security. The network is not more susceptible to attacks due to the new lower difficulty and hashrate. The computing power is distributed among five large mining pools and 12 smaller ones, data from BTC.com illustrates.
Bitcoin is already trading at the lowest price in the last 12 months. Experts and analysts are not at all optimistic about the recovery anytime soon. In fact, many have warned that the price of Bitcoin during the next year could crash to below $10,000 in 2023 due to the longest global recession the world is staring at. The adverse market conditions may force many more bitcoin miners shut down their machines. Whatever the case, the upcoming months are going to be tough for bitcoin traders as well as miners as Crypto winter is here and it’s going to stay for longer than expected.
