Bitcoin Mining Difficulty Decline Compared to FTX Crash, CryptoQuant Reports

Bitcoin mining difficulty experienced a significant drop of 7.8% on June 5, 2024, reaching levels not seen since before the halving event in April. This decline marks the most substantial drop in difficulty since the collapse of the crypto exchange FTX in 2022.

Analysts have observed a sharp decrease in miners’ daily revenues, plunging from $78 million before the halving to $26 million currently. The adjustment in mining difficulty could potentially benefit smaller miners and lead to profits for mining farms.

The reduction in mining difficulty is a positive development for participants in the Bitcoin network, as the power requirements to mine blocks decreased by 7.8% over the weekend. Data tracked by Coinwarz indicates that Bitcoin’s mining difficulty dropped from 83.6 terahash per second (TH/s) to 79.50 TH/s on June 5, returning to levels last seen in March, a month before the halving event in April. A terahash measures the number of hashes generated per second by a mining device, pool, or network.

The adjustment in mining difficulty occurs every two weeks, either increasing or decreasing based on Bitcoin’s structure, which regulates miners by monitoring block generation speed. This recent drop in difficulty is one of the most significant since the collapse of the crypto exchange FTX in 2022, causing Bitcoin prices to plummet by more than 10% in a week, according to analysts at CryptoQuant.

Julio Moreno, the head of research at CryptoQuant, highlighted that the network hashrate experienced a 7.8% decline, similar to the post-FTX collapse in December 2022. He noted that miners’ profitability has been impacted, with daily revenues decreasing from $78 million to $26 million after the halving event.

The decline in mining difficulty since early May has been attributed to lower network hashrate as some miners shut down their equipment due to reduced profitability. This downward adjustment results in a proportional decrease in the network’s hashing power, potentially favoring smaller miners and generating profits for previously closed farms struggling to cover costs.

Miners play a crucial role in the Bitcoin network by using extensive computing power to solve complex encryptions and create blocks on the blockchain. Each block rewards miners with 6.25 BTC, which they typically sell to support their operations.

Recent data shows that miners were a significant source of selling pressure in June, with over $1 billion worth of BTC sold over two weeks as prices fluctuated between $65,000 and $70,000. Additional selling pressure from defunct Mt. Gox and a German government entity further impacted markets, briefly pushing BTC prices down to $53,500.

As Bitcoin hashrate and difficulty are expected to decrease during the North American summer months, miners may find some relief from the intense competition, especially after the halving event squeezed profits. At current prices, only a few of the most popular mining machines remain profitable, signaling a potential “local bottom” for BTC.