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Bitcoin difficulty adjustment overview

Bitcoin mining difficulty drops after six consecutive increases

The latest adjustment, effective at block height 725,760, reduced mining difficulty by 1.49%. In this overview, we’ll analyze the effects on mining and profitability.

Bitcoin’s difficulty adjustment in numbers

The latest difficulty adjustment occurred at block height 725,760, mined on March 3. The hashrate at the time of the adjustment averaged 197.19 EH/s.

Hashrate was 1.49% lower than the 200.19 EH/s from the last change.

As a result, difficulty decreased 1.49% from 27.97T to 27.55T. This change marked the end of a six-epoch-long difficulty-increasing streak that had been going on since December. However, difficulty and hashrate are still sitting at historically high levels.

Difficulty adjustment effects on Bitcoin mining profitability

To understand how this difficulty change affects profitability, we need to look at the dynamic between price action and hashrate.

Bitcoin’s hashrate and price often follow similar paths and trends. This happens because both price action and total hashrate — which affects difficulty — are two major factors that determine mining profitability:

  • If bitcoin’s price increases, mining becomes more profitable. Mining revenue increases, incentivizing miners to acquire more hashpower, driving the network’s total hashrate up and difficulty with it.
  • If bitcoin’s price drops, or if difficulty increases to the point that mining is not as profitable anymore, miners lose the incentive to keep mining and start turning off their miners. This leads to a decrease in hashrate and, thus, in difficulty.

That said, last week, bitcoin failed to break the $45K resistance and fell to $41K just before the adjustment. This steep drop is one of the reasons behind the hashrate decrease and the downward difficulty adjustment.

Unfortunately for miners, however, the change in difficulty wasn’t enough to recover profitability. Bitcoin kept dipping after the adjustment and reached the $38K level. This led to hashprice decreasing from $0.20 to $0.17 and daily miner revenue from $40.1M to $30.7M — according to Coin Metrics.

Remember, hashprice is a metric determining the amount of US dollars miners make for each terahash they produce per second. In contrast, daily miner revenue is the total dollar value of all the bitcoin earned by miners in a day.

This case in particular is a good example of how difficulty alone doesn’t affect profitability — often times, lower difficulty translates into higher revenue, but not this time.

Instead, it is the relationship between difficulty and price what determines mining profitability and revenue.

Implications of the latest difficulty adjustment

Short-term speaking, it’s probable that the total hashrate will further decrease unless bitcoin’s price recovers before the next adjustment in approximately two weeks.

This scenario would lead to two consecutive difficulty decreases, which hasn’t happened since July 2021.

On the other hand, if bitcoin manages to climb back above the $45K level, hashrate will likely follow. Such an increase would resume hashrate’s long-term growth trend and take mining difficulty to yet another new all-time high.

TL;DR:

  • Difficulty adjustment block height: 725,760
  • Date of the adjustment: 03/03/2022
  • Average hashrate at the time of the adjustment: 197.19 EH/s
  • Previous difficulty: 27.97T (ATH)
  • Current difficulty: 27.55T
  • Difficulty change: -1.49%
  • Miner revenue per hash per second (hashprice) after adjustment: $0.17

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