Published: October 18th, 2023
The difficulty level for Bitcoin mining reached a new high this week, rising by 6.48 per cent on Monday 16th October and raising the computational bar for miners seeking to uncover blocks.
New data from the CoinWarz analytics service has tracked the required number of hashes needed to mine a block at 61.02 trillion.
It marks the third consecutive rise in difficulty faced by miners since August, and nearly double the difficulty level reached in October 2022.
Bitcoin's network is set to readjust every 2,016 blocks (in practice this has meant roughly once a fortnight), as the blockchain measures whether mining activity has increased or reduced the time needed to find a new block. An increase in time usually means more miners have joined the network.
The network responds by raising the level of mining difficulty. The complex equations that need to be solved become even more complex, and miners have to apply more computational power in order to mine a block.
Some analysts are blaming the spike in activity on the upcoming Bitcoin halving, which is now about six months away.
In an interview with Bloomberg, Jeffery May, an executive with crypto exchange BTSE, said that the surge in mining activity ‘probably means everyone is trying to maximise returns before next year’s halving. After it happens, the rewards for BTC mining will be cut by fifty per cent. Miners are surely trying to wring every bit of value out of their equipment before the cutoff.’
‘We expect to see a rush of miners coming online between now and April 2024. It will be in every miner’s interest to maximise use of their equipment at the current payout rate of 6.25 BTC/per block. After the halving that drops to 3.125 BTC/block.’
Significant changes in mining activity usually signal that something is afoot in the market. It might be an upcoming network event like the planned halving for BTC, or indicate that gains or losses for a given crypto asset are imminent.
In February 2023, leading Bitcoin Miner Iris Energy said that its hash rate was rising again after a notable downturn at the end of 2022. The company’s self-mining capacity rose from two exahashes per second to five.
A single exahash equates to one quintillion hashes, which represent possible solutions to the complex math equations required to approve and confirm a Bitcoin transaction.
According to figures from Glassnode, BTC's price rise above USD 20,000 helped push the average Bitcoin miner back into the black, even taking into account the hefty costs of operating a mining machine.
A press release on Iris Energy’s website said the firm had also agreed a financing deal with Bitmain, the manufacturer of Antminer cryptocurrency mining servers, to purchase a round of new S19j Pro miners. That expanded Iris’s data centre capacity by 4.4 exahashes per second.
The rise in Iris’s hash rate was enough to overcome a loss of 3.6 exahashes experienced in November 2022. The downturn in transaction volume forced it to mothball some of its mining infrastructure, which is also collateral for loans worth ca. USD 100 million.
Like many mining firms in late 2022, Iris found itself in a squeeze between spiking energy costs and cratering BTC prices. Cash flow fell to a trickle and made it difficult to cover payments to creditors.
Core Scientific, America’s biggest Bitcoin mining facility, ended 2022 with a bankruptcy filing. Another large firm, Argo Blockchain, saw its business crippled in December by a polar vortex winter storm that closed its Texas data centre.
After the turnaround, Iris said that its obligations under the 10 exahash contract with Bitmain had been fully resolved, leaving the company free of debt.
While it was too early to declare that good times had returned for crypto traders, there were earlier signs that markets might be on the up.
Ahead of BTC’s Q1 2023 price rise, analysts noted an extended correlation between BTC’s price and the price of gold in late October 2022. It suggested that investors were using BTC as a hedge against broader volatility, particularly in stock markets. For an asset traditionally shunned by investors because of its penchant for sudden and dramatic dips and spikes, that represented a notable shift.
That same month, Bitcoin's price volatility largely vanished. Data from blockchain analytics firm Kaiko showed that BTC's 20-day volatility had been similar to the NASDAQ for the first time in nearly 24 months. In an unexpected swapping of roles, Bitcoin’s price had been more or less the same since the beginning of September. The NASDAQ and the S&P 500 both dropped by 12 per cent and 11 per cent respectively in the same period.
Bitcoin’s price has historically been correlated with technology stocks, though with a higher ‘beta’ (propensity for volatility) than other financial assets. Despite impressive gains posted in 2021, its high beta rating has kept many investors from relying on it as safe-haven asset. Despite a price plunge in June, BTC and other major cryptos have been some of the best-performing assets in Q3, after the mighty Greenback.
Bitcoin’s price did drop back to lows last seen in 2020 during the week commencing 10th October, after core US inflation topped another 40-year high. Both BTC and equities fell on the news, before quickly bouncing back to their previous ranges.
The previous plunge seen in June followed the release of American inflation data for May, which showed consumer prices rising at a burning hot rate of at 8.7 per cent. Investors saw it as a sign that the Federal Reserve wouldn’t be altering its aggressive policy course any time soon, prompting a risk-off move that shifted money away from riskier assets.
However, while high inflation has held firm for months, crypto’s price action hasn’t surged or plunged with subsequent updates to the consumer price index (CPI) inflation measure. Stocks, on the other hand, have been in a slow-but-steady decline.