Bitcoin Mining Difficulty Falls Amid Crypto Price Slump—But Should Climb Again

The network’s difficulty fell Sunday from over 114 trillion to 110.5 trillion, data provider CoinWarz shows. The drop comes as Bitcoin’s price has plummeted. On Wednesday afternoon, BTC traded below $83,000 for the first time since early November, according to crypto data provider CoinGecko.

Declines in mining difficulty during bear markets are typical. As prices dip and demand for assets wanes, some companies may cut their mining capacity, pulling devices offline to conserve power. The latest drop also coincides with a brutally cold winter spell in many parts of the U.S. that has ratcheted up energy prices.

When markets are flourishing, the mining network grows, increasing difficulty. Difficulty has spiked throughout Bitcoin’s 16-year history as the expanding network has required more computing power and energy. The metric is important with increases signaling that the network is growing more secure.

“Energy across the U.S. is elevated due to winter conditions,” Nick Hansen, CEO and co-founder of the Luxor mining pool, told Decrypt. “There is more demand for energy which drives up the prices [of mining operations].”

He added that a “combination of higher overall energy costs along with a dip in price in general” was causing some mining operations to curtail operations more than they normally would.

Bitcoin mining reset

Curtis Harris, senior director of growth at mining services provider Compass Mining, said that the recent “slight pullback could signal a reset as miners adjust to” Bitcoin’s slump, “while managing energy costs, infrastructure constraints, and slower next-generation hardware deployment.”

Mining difficulty hit new highs in January when Bitcoin set a new record price over $108,000.

Miners, large industrial banks of computers that receive BTC rewards for processing transactions on the blockchain, are often happy with brief decreases in difficulty as operations become easier and more profitable. The problem is that BTC’s price has dropped precipitously, chief business officer at BlockMetrix Ro Shirole told Decrypt.

“The network shrinking helps [miners], but the price drop outpaced the percentage of network shrinkage,” he said, adding that miners only rejoiced for “about five minutes.”

Bitcoin’s mining difficulty adjusts after every 2,016 blocks have been processed. This occurs, on average, every two weeks. A difficulty of 110.5 trillion means it is now 110.5 trillion times harder to mine the asset than when the first block was mined back in 2009.

Still, the recent decline in difficulty is unlikely to last, Scott Norris, CEO of independent Bitcoin miner Optiminer, told Decrypt, noting that North American operations were expanding and that the network would therefore grow as a result.

“Miners can enjoy the adjustment down for the moment,” he said, “but it’s about to go up.”

Edited by James Rubin