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Bitcoin mining difficulty stalls as profitability reaches lowest point in 5 months

The latest adjustment, effective at block height 715,680, increased Bitcoin mining difficulty by 0.32%. In this overview, we’ll analyze the effects this has on mining and profitability.

Bitcoin’s difficulty adjustment in numbers

The latest difficulty adjustment occurred at block height 715,680, mined on Christmas Day, December 25. The hashrate at the time of the adjustment was 173.69 EH/s — only 0.71% higher than the 172.45 EH/s from the previous difficulty change.

Bitcoin hashrate (Source: Coin Metrics).

As a result, difficulty rose merely 0.32% from 24.20T to 24.27T. This mild adjustment isn’t much of a surprise, as mining profitability has reached its lowest levels since Q2 2021.

Current mining revenue is not enough incentive for many retail miners, especially those with higher electricity costs. Additionally, the energy crisis in Europe has led to the price per megawatt reaching all-time highs.

All these circumstances have caused hashrate to stall under the 180 EH/s line.

Bitcoin mining difficulty (Source: Coin Metrics).

The year of Bitcoin mining

2021 was an exceptional year for Bitcoin miners.

For starters, we enjoyed a bull run that took BTC from $29K to a new all-time high of $69K, sky-rocketing the dollar value of miners’ inventory.

Secondly, China’s crackdown on mining led to a ~50% drop in hashrate. The subsequent decrease in difficulty was an enormous profitability boost for the miners that remained online.

Hashrate’s full recovery took roughly six months. During that period, miners enjoyed mining Bitcoin at all-time high values and reduced difficulty. An unprecedented event that will be hard to see again.

These factors led to 2021 being the most profitable year for Bitcoin mining in history — always measured in fiat terms — with miners generating more than $15 billion in revenue.

Bitcoin miner revenue in USD since 2011 (Source: Coin Metrics).

Unfortunately, however, the exceptional mining bonanza period seems to be coming to its end.

With BTC unable to go back to all-time highs and hashrate already climbing over pre-Chinese ban levels, profitability has been consistently dropping and is close to yearly lows.

Difficulty adjustment effects on profitability

Difficulty has barely changed this time, meaning that changes in profitability were mostly a consequence of price action. As long as there aren’t any significant changes in hashrate, we will see profitability follow price until the next adjustment.

Miner revenue per hash per second, or hashprice (Source: Coin Metrics).

Nevertheless, although profitability is reaching a tipping point for retail miners, enterprise-level mining operations have reported exponential growth this year. Most importantly, many of them have also announced the acquisition of more mining hardware to expand their hashrate.

That said, it’s very likely that hashrate — and difficulty — will keep increasing in the long term as these mining organizations complete their expansion.

Closing thoughts

Bitcoin mining profitability is still high when compared to previous years. However, the exceptional profitability period triggered by the Chinese crackdown is now behind us.

Considering the increasing hashrate, it would seem that the only way to recover those profit levels would be BTC resuming the bullish run and surpassing its previous all-time high.

This would also be excellent news for the Bitcoin network as a whole. Higher profitability provides retail and domestic miners incentive to provide security to the network. Otherwise, we will see hashrate become more centralized in the long run.

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