Bitcoin’s mining difficulty rate – a measure of how hard it is for a miner to successfully hash a BTC – has increased by 6%, marking the first difficulty hike in eight weeks.
The incremental increase, which automatically came into effect on July 31, signals that mining competition is intensifying as many exiled Chinese miners resume operations following China’s crackdown on crypto mining in June.
Importantly, Bitcoin mining is still 48% easier than it was before Beijing’s moves.
A continuous eight week drop in mining difficult rates across four intervals is largely unprecedented.
This upturn is mathematically tied to the slowly climbing BTC SHA256 hash rate (effectively a measure of how many miners are actively mining), which has now recovered to 114 EH/s – levels not seen since November.
The Chinese mining exodus – which accounted for around 65% of the Bitcoin mining industry – saw the hash rate drop below 100 for the first-time since May 2020.
A recovering hash rate can be interpreted as a bullish signal, however, a 2020 Russian study of BTC price and hash rates revealed that price impacts on hash rate more than vice versa.
Understanding difficulty rate
The difficulty rate automatically adjusts on a fortnightly basis to maintain consistent block times of around 10 minutes per block; this ensures blocks are added at regular intervals into Bitcoin’s blockchain.
This is a critical data point for miners as it’s closely linked to their profit margins; effectively acting as the grim reaper of miner capitulation.
The difficulty rate also informs miners on their decisions to sell, so needless to say, all eyes are on the adjustment later this week.
Over the past few years miners have wrestled with the volatility of the Bitcoin price, and this has seen a series of rise and falls in the BTC hash rate especially during 2018.
In March 2020 there was a shock decline of 29% in the hash rate in anticipation of 2020’s Bitcoin block reward halving event (which saw miner’s rewards reduce from 12.5BTC to 6.25BTC).
With the January 2021 bull run prompting an all-time high in the mining difficulty rate (a 21.5% increase), it is worth considering the hash rate has remained above 100 EH/s for the best part of the past year, so the move to 114 EH/s is a healthy recovery.
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Disclaimer: The views and opinions are expressed by the author
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.