April 19, 2024
Latest Cryptocurrency News

Bitcoin Mining Difficulty Reaches All-Time High, Posing Challenges for Miners

Bitcoin (BTC) mining difficulty has surged to an unprecedented level of 53.91 trillion units following the latest adjustment on July 12, highlighting the increasing difficulty of mining Bitcoin blocks. The mining difficulty serves as a measure of the complexity associated with mining new Bitcoins.

The blockchain ecosystem regularly adjusts its difficulty every two weeks to maintain a consistent processing time of approximately 10 minutes. As the network’s processing power expands, the difficulty adjusts accordingly, making mining more arduous and diminishing the profitability for individual miners.

Unfortunately for miners, the latest adjustment adds to the existing pressure they face due to the persistent selling of their mined BTC since June. Several analysts believe that the absence of miner accumulation has likely hindered the potential uptrend in BTC price.

In the wake of the recent difficulty adjustment, medium and small-scale miners are expected to witness a decline in profitability, potentially plunging into negative territory. Consequently, these miners may be forced to temporarily shut down some of their application-specific integrated circuit (ASIC) miners to cope with the challenging conditions.

The potential capitulation of weaker miners could pave the way for larger miners to accumulate more Bitcoin, ultimately alleviating the mining selling pressure that currently exists.

The Hash Ribbon indicator, a creation of independent analyst Charles Edwards, offers insights into the state of miner capitulation. This indicator tracks the 30-day and 60-day moving averages (MA) of the network’s hash rate. When the 30-day MA falls below the 60-day MA, it signifies the possibility of miner capitulation, indicating that unprofitable miners are leaving the market.

At present, the two lines of the Hash Ribbon indicator are approaching a potential crossover, and the recent increase in mining difficulty might finally serve as the catalyst for the anticipated capitulation of weaker miners. If this occurs, more efficient miners would be rewarded with increased opportunities to retain a portion of their output instead of immediately selling it.

Can Bitcoin Rally Once the Miner Selling Subsides?

In recent times, there has been a noticeable trend of miners offloading substantial amounts of BTC on exchanges. A report by K33 Research revealed that publicly listed miners sold 100% or more of their output in May. Furthermore, during June and July, the cumulative transfer volume of BTC from miner wallets to exchanges reached a six-year peak, indicating a continued high rate of Bitcoin offloading by miners.

The one-hop supply of miners, as reported by Coin Metrics, representing the total amount held in wallets that received coins from mining pools, has dipped to one-year lows. This observation suggests that miners have been uploading more coins than their production output, further contributing to the supply influx.

Interestingly, while miners have been actively selling, data from on-chain analytics firm Santiment reveals a contrasting behavior among Bitcoin whales, who are the most prominent BTC investors. These whales, often identified by addresses holding between 10 to 10,000 BTC, have increased their holdings by an impressive $2.15 billion since June 17.

Additionally, the amount of Bitcoin held by exchanges has fallen below the levels seen in 2017. This indicates that investors are moving their BTC off exchanges, resulting in an increase in the illiquid supply of Bitcoin.

While the accumulation of Bitcoin by whales has historically driven the price of BTC higher, the current situation has seen the price remain relatively stagnant within a narrow range of $29,500 to $31,500. This lack of significant movement may be partially attributed to the persistent selling pressure exerted by miners.

As the dynamics between miners and whales evolve, the future of BTC price movement remains uncertain, potentially hinging on the resolution of the miner selling pressure.

Image by macrovector on Freepik

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