The Bitcoin mining difficulty, a measure of how difficult it is to mine a block, just hit a new all-time high at 55.62 trillion hashes, as per CoinWarz.
The Bitcoin mining difficulty is automatically adjusted by the protocol once every two weeks, or once 2,016 blocks have been mined, with these block intervals referred to as epochs.
The Bitcoin network aims for it to take 10 minutes to mine each block.
If mining activity rises during one epoch, bringing the average time to mine a block down from this 10-minute target, the network automatically adjusts the mining difficulty higher at the end of the epoch.
Likewise, if the average time to mine a block rises above 10 minutes during an epoch, the difficulty will be reduced.
The mining difficulty at an all-time high is a direct reflection of the rising computing power of the Bitcoin network, as more miners enter the market to gain a share of the network’s Bitcoin issuance (6.5 BTC per block) and transaction fees.
Indeed, the hash rate (a measure of computing power) of the network reached an all-time high of around 414 TH/s earlier this month, as per Blockchain.com.
That’s a jump of more than 60% since the start of the year.
Here’s Why a Rising Difficulty is Bullish for Bitcoin, According to Bitfinex
Bitcoin’s rising difficulty is bullish for the price, argue analysts at Bitfinex.
“Bitcoin difficulty increasing can suggest that miners believe that the current price demonstrates that the current price of Bitcoin suggests a downwards deviation in the true value of Bitcoin,” analysts at the exchange told Cryptonews.com.
“Miners could be confident that the price of Bitcoin will eventually rebound as this can be seen as a mere downwards deviation from its real value… Hence investing more resources to mine Bitcoin at these prices could be highly profitable to them”.
Miners are significant holders of the Bitcoin supply and, if they are confident that prices are going to rise, this could reduce supply from a key segment of the bitcoin market.
Bitcoin (BTC) is currently on course to end August more than 10% lower, its worst month of the year so far.
The cryptocurrency, last near $26,000, came under pressure this month after 1) macro headwinds amid rising US yields and falling US stock prices and 2) technical selling after falling below its prior 2023 uptrend and 200DMA.
That has seen the cryptocurrency unwind its June/early July gains made amid optimism about a potential spot Bitcoin ETF approvals later this year/in early 2024.
But many think that the Bitcoin price won’t stay at suppressed levels for long – not only are spot ETF approvals expected to spur institutional adoption in 2024, but the Bitcoin halving is also coming up (historically a bullish catalyst) and a Fed interest rate cutting cycle also appears to be on the horizon (perhaps for the second half of 2024).
Bitcoin typically hits new all-time highs within a year of the halving (the next one is next April).
Given this would mark gains of nearly 3x from current price levels, perhaps it isn’t surprising that Bitcoin miners are doubling down and investing.