Drop in Bitcoin Mining Difficulty ‘Comparable to FTX Collapse,’ CryptoQuant Says

As a researcher with extensive experience in the Bitcoin and cryptocurrency market, I find the recent significant drop in Bitcoin mining difficulty on June 5, 2024, to be an interesting development. The decline, which marks the largest difficulty drop since the collapse of crypto exchange FTX in 2022, could potentially bring relief to smaller miners and even lead to profits for larger mining farms.

As a crypto investor, I’m elated to learn that one of the significant players in the Bitcoin mining scene could potentially experience some good news in the upcoming weeks. The energy consumption needed to mine new blocks has decreased by an impressive 7.8% over the past weekend.

The mining difficulty of Bitcoin, as monitored by Coinwarz, decreased from 83.6 trillion hashes per second to 79.50 trillion hashes per second on June 5. This marks a return to levels last seen in March, prior to the halving event in April. A terahash signifies the computational power, expressed as the number of guesses for a calculation per second, that a mining device, pool, or network possesses.

The mining difficulty for Bitcoin is adjusted every two weeks and can increase significantly or decrease. This is a result of Bitcoin’s fundamental design, which ensures that the rate at which miners create new blocks remains stable. In other words, it prevents miners from either working too quickly or too slowly in producing new blocks for the Bitcoin network.

One observation made by analysts at CryptoQuant is that the price decline of Bitcoin, which plummeted by over 10% within a week following the collapse of crypto exchange FTX in 2022, represents a significant decrease in difficulty level.

“According to CryptoQuant’s head of research, Julio Moreno, who shared this information with CoinDesk via Telegram, the network hashrate has suffered a 7.8% decrease, similar to the aftermath of the FTX collapse in December 2022. Miners have felt the impact as their daily earnings plummeted from $78 million prior to the halving event to just $26 million at present.”

As an analyst, I would put it this way: “The mining difficulty has been decreasing since early May due to a drop in network hashrate. Some miners have shut down their equipment in reaction to diminishing profitability.”

Decreases in hashing power, which equates to a proportional reduction in the network’s mining capabilities, are referred to as downward adjustments in Bitcoin mining. Such reductions can benefit smaller miners and potentially lead to profits for mining operations that had previously shut down due to unsustainable costs.

Miners serve as crucial entities in the Bitcoin system, employing significant computational resources to decipher complex encryption puzzles and generate new blocks for the blockchain. In return, they receive a reward of 6.25 Bitcoins per block they mine. Usually, miners sell this digital currency to finance their ongoing expenses or invest in expanding their mining operations.

In June, miners were the primary sellers of bitcoin, offloading over a billion dollars’ worth in just two weeks. Bitcoin prices fluctuated between $65,000 and $70,000 during this period. Subsequently, selling pressure from defunct Mt. Gox and a German government entity added more volatility to the market – causing bitcoin to dip as low as $53,500 last week.

Previously, CoinDesk noted that Bitcoin’s hashrate and mining difficulty could potentially decrease during the summer months in North America. Miners might scale back their operations in this season, reducing competition for other miners. This could offer some relief to those already struggling with profitability due to the halving event.

At present pricing levels, only a select number of the most widely used Bitcoin mining machines generate a profit for their users. This situation could potentially signify a “low point” or “bottom” in the local Bitcoin market.