While increasing mining difficulty is generally a good sign, it affects the asset price occasionally, and never in one direction.
While predictions by Braiins and Luxor estimated an increase of 12.5% and 12.5% respectively in mining difficulty, the Bitcoin mining difficulty increased by 13%. The rise occurs as mining systems become more efficient, more miners join the network, and the hash rate increases. According to Braiins Insights, the bitcoin hash rate hit an all-time high of 258 exahashes per second (EH/s) on October 4.
By definition, the bitcoin mining difficulty measures how difficult it is to mine a bitcoin block. The mining difficulty automatically adjusts fortnightly to keep the total block time steady at 10 minutes.
Senior Vice President at Foundry, Kevin Zhang noted the increasing difficulty is the result of more “efficient mining systems, reducing heatwaves, and less curtailment across mining facilities.”
The increase in difficulty will likely increase the cost of mining a block. Consequently, this may translate to less profit for miners. Data suggests it may cut off as much as 20% from the profit of miners. COO of Luxor Technologies, Ethan Vera, believes it will place pressure on bottom-tier miners. He also noted that he could cause them to close operations.
How Bitcoin Mining Difficulty Could Impact the Market
While increasing mining difficulty is generally a good sign, it only affects the asset price occasionally, and never in one direction. Sometimes, the jump in difficulty results in significant drops in asset prices. At other times, the increasing mining difficulty causes the asset price to spike. Thus, there have been conflicting opinions as to what effect the increase in mining difficulty will have on the asset.
In the short term, the market is being manipulated by macroeconomic conditions. From tightening fiscal policy to inflation, war, and a global supply chain crisis, the short-term prospects of the cryptocurrency market, in general, remain bleak.
Comparatively, increasing bitcoin mining difficulty suggests the asset has good prospects in the long term. An increase in mining difficulty means more miners are entering the fray and growing the network. A growing and secure network is bound to attract more investors and set up the asset for a better future.
At the time of writing, Bitcoin was trading at $19,343, down 0.74% in 24 hours, according to CoinMarketCap.
An experienced writer with practical experience in the fintech industry. When not writing, he spends his time reading, researching or teaching.
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