Bitcoin Mining Difficulty Experiences Largest Drop Since July 2021 Amid Tough Market Conditions

The Bitcoin network is facing continued challenges in the current market conditions, with mining difficulty experiencing its most significant decline since July 2021. On December 6, an adjustment of 7.32% was recorded at block height 766,080, marking the steepest drop in over a year. This adjustment coincided with a reduction in the average hash rate, which fell from 264.18 EH/s to 245.10 EH/s, according to data from BTC.com.

Bitcoin (BTC) mining difficulty is a metric that measures how hard it is to mine a block. Increased difficulty necessitates additional computing power to verify transactions and create new coins. The mining difficulty adjustment occurs approximately every two weeks, or every 2,016 blocks, to maintain Bitcoin’s target block time of 10 minutes.

This difficulty adjustment is a small reprieve for Bitcoin miners, who have faced a tumultuous journey throughout 2022. Previously reported metrics indicated that in the third quarter of 2022, production costs for new Bitcoin surged, alongside a persistent downward trend in the asset’s price since the start of the year. Rising energy costs have particularly affected miner profit margins in the United States and Europe, leading some operations to cease activities.

Bitcoin miners’ revenue fell to two-year lows at the end of November, attributed to poor overall cryptocurrency market performance coupled with intensified computational demands. This challenging environment has contributed to miner capitulation scenarios and the recent decline in hash rates, ultimately accounting for the latest difficulty adjustment.

Bitcoin mining analyst Jaran Mellerud commented on the situation in a Twitter thread on December 3, indicating that rising electricity prices could likely be behind the recent drop in hash rates: “Many miners operate close to cash flow break-even and will be forced to turn off their machines if market conditions worsen.” He also mentioned that if the price of Bitcoin rises at the end of the year, a significant increase in hash rate until the second quarter of 2023 may be expected.