Bitcoin mining difficulty has decreased dramatically as ongoing macroeconomic conditions force smaller miners out of the Bitcoin mining industry.
New data published by blockchain analytics firm CryptoQuant reveals the rapid movement of Bitcoin miners out of the Bitcoin mining industry, resulting in a significant drop in Bitcoin network difficulty.
Over 14,000 Bitcoin held by wallets owned by cryptocurrency miners were transferred within the first half of July, indicating a mass exit by Bitcoin miners as they rapidly exit BTC positions and heralding the largest movement of BTC assets executed by miners since Q1 2021.
First published on July 16, CryptoQuant analysis reveals that $300 million worth of Bitcoin was transferred out of miner wallets within a single 24-hour period, potentially indicating miner capitulation to market movements and Bitcoin network difficulty.
Ongoing macroeconomic events, including the conflict between Russia and Ukraine, have placed significant pressure on energy prices amidst ongoing inflation concerns, catalyzing downward movement in BTC prices and increasing energy costs.
Bitcoin Miners Exit as Energy Prices Impact Bottom Line
Downward pressure on Bitcoin prices exerts a significant impact on the bottom line of Bitcoin miners, for whom every dollar increase in the price of BTC represents operating income. Current margins within the Bitcoin mining industry hover near 50 percent, a significant decline from 80 percent margins seen at peak Bitcoin prices.
Compressed profit margins within the Bitcoin mining industry paired with increasing energy costs push miners to dispose of BTC assets in order to minimize exposure to volatile cryptocurrency markets and minimize bottom-line risks.
Bitcoin Mining Difficulty Falls as Chinese Miners Wrap Up Operations
As Bitcoin prices fall and miners withdraw from active mining ventures, the total amount of computing power directed toward the maintenance of the Bitcoin network reduces. The global hashrate of Bitcoin, which represents the total amount of processing power focused on solving Bitcoin blocks and a strong indicator of Bitcoin mining competition, decreases as smaller miners exit the competitive BTC mining landscape.
Short-term economic pressure on the Bitcoin mining industry eliminates less efficient miners from the global Bitcoin mining industry, forcing hobbyists and smaller Bitcoin mining operators to temporarily or permanently suspend activities.
The removal of processing power from the global Bitcoin hash rate has a significant impact on the difficulty associated with solving blocks, allowing Bitcoin miners to solve blocks with fewer resources.
Bitcoin’s mining difficulty fell by 5.01 percent in July 2022, representing an 11.39 percent drop in difficulty from Bitcoin’s all-time difficulty high on May 10, 2022. Bitcoin network difficulty, devised by pseudonymous Bitcoin creator Satoshi Nakamoto, adjusts the difficulty of processing transactions as mining power is added or removed from the Bitcoin network.
Changes to the legislative status of Bitcoin mining in China in June 2021, formerly the largest contributor of hashrate to the Bitcoin network, saw the United States establish dominance as the greatest contributor to Bitcoin network maintenance and currently account for roughly 37 percent of all processing power directed toward Bitcoin.