In about half an hour there will be another bitcoin (BTC) mining difficulty adjustment takes place. It is expected to be a huge upward adjustment, which could mean bad news for miners. Because of the low bitcoin price, their profit margin is already nil. What could be the effect of the largest adjustment in more than a year?
Bitcoin miners get it even harder
According to BTC.com the adjustment will be one of +13.3%. This makes it 13.3% more difficult for miners to mine. The aim of this automatic mechanism, which is automatically triggered every 2,016 transaction blocks, is to keep the block times around 10 minutes.
A positive adjustment of this order was last seen in August last year. In addition, the difficulty reaches a new level with this all time high. It is a striking development given the current state of the market, where it does not seem logical for miners to start mining right now. The bitcoin price is low while energy prices are rising worldwide.
The possible effect for BTC miners
The profit margins for bitcoin miners are therefore already small, and will become even smaller with the upcoming difficulty adjustment. One of the effects could therefore be that miners will have to sell more bitcoins from their reserves to cover their costs. Glassnode late in a recent update know that the current average cost of producing a bitcoin is just below the current bitcoin price. So a price drop could be the finest for many miners:
“This risk could manifest as a capitulation of miners, with approximately 78.4k BTC still in miners’ reserves. It is extremely unlikely that all of these BTC will be dumped at once, but it does provide an upper bound on the potential risks.”
Although the rising difficulty is a signal that more miners are joining the network and the Bitcoin network is becoming more secure, the development in this current situation may be less positive than one might think. One of the possibilities is, for example, more downward pressure on the bitcoin price.