The eternal struggle of the Bitcoin Miners will probably never end. Now the Mining Difficulty has risen again by about 15% and the Miner Surrender is on everyone’s lips again. What exactly this is all about and how much Hashrate and Difficulty could actually affect the Bitcoin price, you will learn in this article. Have fun!
Bitcoin Price in the Miner’s wake?
The Mining Difficulty has risen by about 15%, which means that it is now 15% more difficult for the miners to find a block and claim the block for themselves. About every 2 weeks or more precisely every 2016 blocks, this Difficulty is automatically adjusted by the Bitcoin network to keep the block time at about 10 minutes. The higher the hashrate, i.e. the total computing power of the network, the higher the Difficulty increases. However, if the hashrate would decrease, for example due to a natural disaster or other failures, the Difficulty is also adjusted downwards.
On the graph shown, we see a strong decline in the Bitcoin Mining Difficulty directly after the halving in May. For many miners the operation of the mining equipment is no longer profitable enough after halving the blockreward. So they switched off their equipment for the time being to wait for better times or to find better conditions like electricity prices. The special thing about the current change is that the Mining Difficulty increased as much as last time in January 2018.
To make a comparison between Hashrate and Difficulty, the next chart is plotted in the same time period. We can clearly see that immediately after the halving on May 11th the hashrate started to decrease. One has to keep in mind that miners usually don’t mine because they like Bitcoin or want to support the network, but to make money. If after halving they only earn half as much at the same cost, it is absolutely understandable from an economic point of view to switch off.
Bitcoin Mining is a tough business because it requires constant adaptation to market conditions. When the Difficulty is low, it is worthwhile to mine for 2 weeks with all the available computing power. After that, the next adjustment is just around the corner and because all miners probably acted similarly, the Bitcoin network reacts to the increased hashrate with a higher difficulty. Now every miner must reconsider whether the next 2 weeks are worth it or not.
However, the most important indicator remains the Bitcoin price. If it suddenly rises, it can be extremely lucrative to mine Bitcoin even at relatively high electricity prices. Many miners hope for rising prices in the future and try to sell as little Bitcoin as possible to cover costs.
This has also been found by the on-chain data analysis company Glassnode. The inflow of Bitcoin from miners to Exchanges and thus to the market is at its lowest level for a year.
One way for the miners to influence the Bitcoin price is simply to offer less Bitcoin on the market. However, this is contrary to the costs that have to be covered. In addition, the miners would have to consult with each other and only a few can afford to artificially reduce their source of income for a long time. Furthermore, there is a risk that the retained Bitcoins will suddenly come onto the market at the same time and that the effect of the limited supply will be reversed. This would result in an oversupply and the Bitcoin price would decrease.