Over the past few days Bitcoin’s average daily block-time has almost always been above 10 minutes, with peaks at almost 12 minutes.
Bitcoin mining hashrate falls: expected decrease in difficulty
This slowdown in the speed at which blocks are mined, whose ideal rate would be an average of one every 10 minutes, is due to the recent increase in difficulty.
As was to be expected, at a time when the price of BTC was not doing well, such an increase in difficulty has caused the profitability of mining to plummet, as it has led to an increase in energy consumption against a reduction in the value of the BTC cashed in by the miners.
In fact, since the day of the price collapse on 11 May, the profitability of Bitcoin mining has dropped to just over $0.1 per THash/s per day. This is a level not seen since November 2020, before the last big bull run began. At that time 1 BTC was worth about $13,000, the difficulty was about 20T, and the hashrate at 114 THash/s.
Today one Bitcoin is worth about $30,000, the difficulty has risen to 31.2T, and the hashrate to 225 Ehash/s.
By significantly reducing profitability, due to the increase in difficulty at the same time as the value of BTC is heating up, miners inevitably shut down the less efficient and profitable machines, and so hashrate drops.
As a result, after hitting a new all-time high in early May at over 250 Ehash/s, the hashrate has now dropped to around 225, inevitably causing the block-time to increase.
Tomorrow should bring the next automatic difficulty adjustment, and it is estimated that this will be a reduction of close to 4%. It should return to just above 30T, which is just above the level it was at the beginning of the month before the 10 May increase that took the difficulty to a new all-time high.
How will miners react to this reduction?
While this adjustment will certainly have an impact on both block-time and mining profitability, it may not have a significant effect on the price of BTC.
On the one hand, it is true that higher profitability means less need for miners to sell the BTC they mine, but it is unlikely that profitability will increase so much that it will convince many miners to significantly reduce the market sale of the BTC they mine.
It is worth remembering that 6.25 BTC is created and given as a prize in every single mined block, and at the rate of one block every 10 minutes there are about 900 BTC being created every day. When miners have profitability problems they tend to sell all, or almost all, of the BTC they have mined. Since this is a total volume of about 27 million per day, the selling activities may also have some effect on the market.
We will need to wait until spring 2024 for this rate to be halved, to 3.125 BTC per block.
At the very least, however, tomorrow’s difficulty cut should help miners to be able to continue mining even in the face of Bitcoin’s value dropping so much in recent weeks.