On March 17th we had another Bitcoin mining difficulty change, and 2nd decline in a row. The decline this time was only by 0.35%. While the one before on March 3rd was by 1.49%. While none of these are significant declines in mining difficulty, I think they carry a lot of importance.
First back to back declines since China’s ban on mining
First of all, this is the first time since July 2021 that the difficulty declines twice in a row. And in July 2021 there was a great reason for that – ban on Bitcoin mining in China. A lot of miners had to be disconnected from the network, moved to different country and re-connected again. In fact, between May and July 2021, the difficulty declined during 5 out of 6 adjustments and dropped by almost 50% in that time period. Anyone mining outside of China during that period was really lucky. Before the China incident, the last time the difficulty declined twice in a row was in December 2020, so 14 months ago.
Difficulty now the same as if increasing by 2%/adjustment since Mid November
The way the difficulty was developing in 2022 did not look good for miners. Especially considering the Bitcoin price. Most miners operate under assumptions that if the price will be declining, the difficulty will not increase significantly. And if the difficulty increases significantly, the price increase will follow.
2022 was so far really hard for miners. The price of Bitcoin was reaching several month lows of $36,000 in January. And at the same time, the bitcoin mining difficulty was increasing faster than average. There were 3 large difficulty increases in recent months – 8.33% on December 11th, 9.32% on January 20th, 4.78% on February 17th. Difficulty was increasing significantly faster than what miners would expect, and the Bitcoin price was not really recovering to it’s all time highs.
Fortunately, the last 2 declines helped to correct these above average difficulty increases. Table below shows following data:
- Date of the difficulty adjusment
- Actual bitcoin mining difficulty after the adjustment
- Actual bitcoin mining difficulty change during the adjustment
- “What if” difficulty if it only changed 2% with every adjustment
So as you can see, current difficulty is at 27,4. If the increases were 2% since November 2021, it would be 27,1. That is only 1.31% difference.
The average hash-rate in the last adjustment period was 196 EH/s.
In my previous mining difficulty article I assumed we will have 190 EH/s in January, and grow 2% per adjustment (4% per month). With that assumption, the year 2022 would have ended with 290 EH/s. We are now at the end of March, at we are still barely above 190 EH/s.
This slow growth in the total network hashrate can be caused by 4 things:
- Supply issues – manufacturers having problems producing & delivering ASIC miners due to global chip shortage and other global logistics issues
- People disconnecting old miners – A lot of old miners are becoming unprofitable or just barely profitable. With the difficulty increases at the beginning of the year and Bitcoin price hitting long term lows, I imagine that lot of owners of old S9 miners decided to pull the plug
- War in Ukraine – Ukraine is not known for hosting a lot of mining capacity. But I can imagine this having effect on some mining operations, whether in Russia or in Ukraine.
- Continuous problems in Kazakhstan – Over 100 mining locations have been closed in Kazakhstan by local authorities. Kazakhstan was known as hosting quite a bit of global hashrate.
At the end of the day, all we can do here is make some assumptions and hope the difficulty will be increasing at a reasonable level. For now, I must say that the last difficulty decreases have pleased me and will definitely improve ROI of my operations.