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Mining profitability takes a hit as difficulty rises and Bitcoin drops below $60K

The latest Bitcoin difficulty adjustment took place on November 14, increasing it by 4.69%. Let’s see how this change affects miners’ profitability.

Bitcoin’s difficulty adjustment in numbers

The latest difficulty change occurred at block height 709,632, although it was overshadowed by the excitement and expectation around the Taproot update activation.

Hashrate has been consistently growing for 5 months now, and this week was no different. The total amount of hashpower working on the network reached 162.15 EH/s by the time of the adjustment.

After the change, difficulty rose from 21.65 to 22.67T, making it 4.69% harder to find a block.

The Bitcoin network has now unwound over 90% of the difficulty drop before the great hashrate migration out of China.

Bitcoin’s mining difficulty (Source: Coin Metrics).

Difficulty impact on miners’ earnings

Miners’ revenue and earnings can be affected by several variables that are inherent to the Bitcoin network. However, the two of them with the most significant impact are mining difficulty and price action.

Every time Bitcoin’s difficulty rises, it takes miners more hashpower to find a block. Consequently, the value of their hashrate proportionally decreases as they earn fewer rewards for the same amount of computing power.

Bitcoin miners’ revenue in BTC (Source: Coin Metrics).

On the other hand, miners get paid in bitcoin but pay the costs and expenses of their operation in their local fiat currencies.

That said, bitcoin’s price will determine how much their mined coins are worth, and thus, how much they have to sell to cover the costs.

A more expensive bitcoin means that miners can sell less of it to pay for electricity and maintenance, allowing them to hold more coins. Contrarily, a lower price will force them to sell more of them to cover their costs.

Miners who don’t want to sell their coins in the long term have another option: to borrow fiat against their bitcoin to pay their expenses. In those cases, price action will determine the amount of BTC they have to lock up as collateral to borrow against it and thus the level of risk they are exposed to.

Correlation between Bitcoin miners’ revenue in USD and BTC’s price (Source: Coin Metrics).

Mining profitability takes a hit

The latest difficulty increase coincided with bitcoin’s price drop below $60K after its new all-time high of $69K.

The combination of these two factors led to mining profitability taking a hit.

Hashprice — a metric that measures miners’ earnings per TH — dropped from $0.3777 to $0.3383. That’s a 10.43% decrease in mining profitability.

Zooming out, miner revenue is still at high yearly levels. However, with difficulty also coming close to previous all-time highs, it is uncertain if miners will enjoy this level of profitability for much longer.

Bitcoin miners’ revenue per hash per second, also known as hashprice (Source: Coin Metrics).

Closing thoughts

With no signs of hashrate slowing down — quite the contrary, actually — , profitability would need Bitcoin to resume its bullish rally and continue upwards for effectively recovering.

Miners have been enjoying increased profitability ever since the Chinese crackdown. However, at the current difficulty rates, price action will become ever more critical to hold those high revenue levels.

A surge in BTC’s price would counter-balance the rising difficulty’s negative effects on revenue. Miners would still earn less coins for their hashrate, but the increase in dollar value would enable them to earn better profits from mining and holding more bitcoin in the long term.

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An extensive library of newsworthy, analytical, and educational content regarding cryptocurrency and crypto mining. By Lumerin Protocol, built by Titan Mining.

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