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Bitcoin Mining Difficulty Drops: A Positive Sign for BTC Price?

Bitcoin's difficulty drop might indicate a positive BTC price shift.

Wed, 10 Jul 2024, 02:22 am UTC

Bitcoin's mining difficulty decreased by 7.8% recently, suggesting a positive outlook for BTC price, analysts say.

Current Trends in Bitcoin's Hashrate and Difficulty

The recent difficulties faced by Bitcoin miners may actually be a positive indicator for the price of Bitcoin, according to historical evidence.

Hashrate Index reports that Bitcoin's overall hash rate has dropped from 658 EH/s at its May peak to 556 EH/s on June 28. As a measure of the overall effort being put in by miners to secure the Bitcoin network, the hash rate can be seen as a proxy for mining competition.

As a result, over the weekend, the Bitcoin network automatically reduced the block-mining difficulty from 83.68 TH/s to 79.50 TH/s, a decrease of 7.8%.

Significance of Recent Difficulty Reductions

In Bitcoin's history, drops of that magnitude are quite rare. The last time there was a significant decline in hash rate and network difficulty of this size was in December 2022, following the collapse of FTX. At that time, numerous large mining companies went bankrupt, and Bitcoin's price hit rock bottom after a year-long downturn.

"Miner capitulation" has historically been linked to a Bitcoin market bottom, according to a report last week by CryptoQuant. This suggests that traders seeking to enter the market at the optimal time may find it crucial to closely monitor the health of miners.

Decrypt shares that the profitability of Bitcoin miners is directly correlated to the value of Bitcoin in the market. Consequently, the mining industry's income has taken a major hit due to Bitcoin's significant price decline since March.

Yet, the Bitcoin halving that occurred in April has been the biggest headache for miners.

"Bitcoin miner reserves decreased by roughly 20k BTC since June," expressed Vincent Maliepaard, marketing director at IntoTheBlock, in an interview with Decrypt. "The Bitcoin halving two months ago might be a driver behind the recent miner sell-off as margins have decreased since then."

Bitcoin's Halving Event Reduces Miner Profitability

The "hashprice" of Bitcoin, which is a metric measuring the profitability of the mining sector relative to the amount of work done, has fallen to record lows within the past three months.

Compass Mining reports that following a halving incident, periods of such low profitability often last for 6 to 12 months.

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