Bitcoin Mining Difficulty Drops to Lowest Point Since December 2022
Key Insights:
- Bitcoin’s mining difficulty drops by 6%, marking the largest decrease since December 2022’s bear market.
- Reduced hashrate and miner shutdowns after the recent halving lead to a notable drop in Bitcoin mining difficulty.
- Post-halving, Bitcoin miners face reduced revenue, impacting hashrate and causing significant difficulty adjustments in the network.
Bitcoin mining difficulty has decreased by 5.63%, reaching its lowest level since December 2022. The difficulty level now stands at 83.15 trillion, a drop that aligns with the values seen during the 2022 bear market. This period was marked by a series of bankruptcies, including the collapse of Terra and FTX, which similarly impacted mining operations.
The reduction in mining difficulty suggests a decrease in the number of miners actively participating in the network. According to BTC.com, the average hashrate over the past two weeks was 595 EH/s, down from 630 EH/s. This decrease is likely due to miners shutting down their equipment after the most recent Bitcoin halving, which rendered their operations unprofitable.
On April 20, Bitcoin underwent its fourth halving event, which reduced the block reward from 6.25 BTC to 3.125 BTC. This event typically results in increased mining difficulty due to heightened network activity and transaction fees. However, despite the initial spike in difficulty, miners’ income has been negatively affected, leading to the current reduction in active mining operations.
Following the halving, Bitcoin miners’ daily revenue dropped to levels not seen since October 2023. Data from Blockchain.com indicates that total miner income fell to $26.38 million on May 3. Despite these challenges, Ki Young Ju, CEO of CryptoQuant, reported no signs of miner capitulation. He speculated that BTC prices would need to reach $80,000 to maintain profitability for miners post-halving.
Impact on Hash Rate and Hash Price
The network’s hash rate, a measure of computational power used to mine Bitcoin, has declined 10% since the last difficulty adjustment on April 24. This drop, from a seven-day moving average of 639.58 EH/s to 578.74 EH/s, has resulted in slower block times, averaging 10 minutes and 36 seconds.
Bitcoin’s hash price, which reflects the expected earnings from a given amount of hash rate, fell to an all-time low of less than $50 per PH/s per day on April 29. This metric is crucial for miners as it directly influences their profitability. The decline in hash price coincided with Bitcoin’s price falling below the $63,000 mark, adding further strain on mining operations.
Future Projections and Adjustments
The next adjustment in mining difficulty is anticipated to occur on May 23, with a predicted minor drawdown of 0.19%. This adjustment follows two positive changes surrounding the halving event, with increases of 4% and 2%, respectively, bringing the difficulty to a record 88.1 trillion.
These adjustments are crucial for maintaining the network’s stability and ensuring that a new block is found approximately every 10 minutes. The recent negative adjustment aims to ease the strain on miners, making it slightly easier to mine new blocks and potentially stabilizing the network’s hash rate.
Transaction Fees and New Protocols
The halving event also saw the launch of the Runes protocol, developed by Ordinals creator Casey Rodarmor. This new fungible token standard for Bitcoin initially drove up transaction fee revenue for miners, helping to offset the reduced block rewards. On the day of the halving, block 840,000 generated $2.4 million in fees, far exceeding the approximate $200,000 block subsidy reward.
However, the initial hype surrounding Runes led to a record run of transaction fee rewards higher than the subsidy. In the first week following the launch, Runes transactions generated over $135 million in fees. Yet, average transaction fees have since dropped significantly from a high of $128.45 to around $1.
This decline in transaction fees, coupled with the reduced block rewards, continues to challenge miners’ profitability. The ongoing adjustments in mining difficulty aim to balance these factors and maintain network stability.
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