Bitcoin’s (BTC) price action has been erratic since the global crypto crash in May 2022. After the market collapse, BTC plummeted to a 52-week low of $26,350 on 12 May. At the time of writing (9 June), BTC was trading at $30,200, hinting that it may be on the path to recovery.
Meanwhile, according to statistics from Blockchain.com, BTC mining difficulty hit an all-time high of 31.251 TeraHashes per Second (TH/s) on 12 May, making the network more secure and resilient against attacks.
However, it fell to 29.897 TH/s by 26 May. Interestingly, the mining difficulty has begun to grow again and reached 30.108 TH/s at the time of writing.
Bitcoin may be in a bearish market, but the mining industry is growing larger than ever. As a result, Bitcoin mining difficulty established a new record high for the sixth time this year.
Relevance of Bitcoin mining difficulty
Bitcoin mining difficulty is a measurement of how difficult it would be for a miner to verify transactions on a block. Such tweaks to the mining difficulty are significantly associated with changes in the mining hashrate because the higher the mining difficulty, the more the computer power utilised per second while mining.
The mining difficulty of Bitcoin is changed every 2,016 blocks or about every two weeks. Each interval of 2,016 blocks is referred to as the difficulty epoch. During this period, the network assesses whether the activity of miners over the last two weeks has decreased or increased.
If less than 10 minutes are required to solve a block, the mining difficulty will be increased. However, when the block time exceeds 10 minutes, the opposite occurs.
Mining difficulty and price action
Throughout most of 2021, Bitcoin’s price and mining difficulty had a rather strong positive correlation.
Both indices moved in tandem during the euphoric phases of early 2021, the China-ban-related market meltdown in the summer, and the market resurgence at the end of the year.
However, the correlation between difficulty and price is often only positive in bullish markets when both variables grow together.
Increases in difficulty are caused by a higher hash rate, which necessitates an ever-increasing amount of computer power to process Bitcoin network transactions and maintain the distributed ledger’s integrity. This is an objectively positive development for Bitcoin.
However, for the economics of certain miners, this is not necessarily a reason for celebration since the hash price decreases as difficulty rises.
Hash price is the anticipated income per unit of the hash rate that a miner gives to the network. The hash rate increases when Bitcoin’s price climbs faster than the difficulty. It also increases when Bitcoin’s price declines more slowly than its difficulty. But when difficulty rises and bitcoin’s price declines, which is now the case, the hash price plummets.
Hence, bear markets are often more favourable for launching new mining operations because the hardware is inexpensive, and the enthusiasm among other miners is low.
And miners who enter the sector at the height of a bull market have a considerably greater risk of failing or being forced out of the market than miners who begin mining during downturns.
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