A possible leap over the $14,000 mark is likely to be delayed by Bitcoin’s automatic adjustment of the mining difference.
Bitcoin (BTC) will face further pressure to sell this week as the mining deficit will experience the greatest relief in the last five years.
As data from BTC.com shows, the mining difficulty is estimated to be reduced by 8.3% if it makes its next automatic adjustment within the next four days.
Difficulty will be reduced
The Mining-Difficulty is the degree of difficulty of the mathematical problems that have to be solved for the mining of Bitcoin. The greater the competition among the miners, the higher the degree of difficulty. The Difficulty is therefore also a measure of the „health“ of the network.
The automatic adjustment of the level of difficulty fulfils an important function in this context, as it ensures that the mining or the required computing effort remains proportionate and profitable.
In June, the Difficulty had been reduced by 9.3%, after a previous decrease of 6.3%. The latter reduction was the result of a veritable exodus of miners following the halving of Bitcoin’s block reward in May, also known as halving.
The halving of the block reward also halves the rate of increase in the volume in circulation, creating a targeted shortage, but it also drastically changes the conditions for miners. Especially miners with older equipment and smaller profit margins have been pushed out of the market by the recent halving. The two subsequent reductions in mining difficulty made it interesting for miners with less efficient conditions to re-enter the market, but this again resulted in an increase of 15%.
The most recent reduction is probably indirectly related to the end of the rainy season in China. The province of Sichuan in particular is home to a large number of Chinese miners, who are benefiting from the favourable prices of hydroelectric power. At the end of the rainy season, however, the province’s rivers dry up again, which pushes up electricity costs and forces the miners to resettle. In the meantime, there is less competition on the mining market, which in turn reduces the difficulty.
Possible record run delayed
The reduction of the mining difficulty could have unintended effects on the current price development of Bitcoin. For the first time in 18 months, the market-leading crypto currency is scratching the $14,000 mark, but the jump over this hurdle could be delayed for the time being.
This would be all the worse as there is little resistance between USD 14,000 and Bitcoin’s previous record high of USD 20,000. The adjustment of the mining deficit may prevent a new record run for the moment.
Developer Matt Odell sums it up:
„The end of the rainy season in China increases the cost of hydroelectricity, which in turn lowers the hashrate, as miners have to look for cheaper electricity prices. So until the difficulty is adjusted, fewer blocks will be mined.
Odell thus points to another consequence of the reduced activity of the miners, namely an increase in transaction fees, which have currently shot up by almost 200 %.
In June, the Bitcoin price had fallen in line with falling mining-difficulty and hashrate. When both parameters started to rise again, the price was able to rise again, which supports the popular theory that the price development is related to the difference and hashrate.
Hashrate of Bitcoin. Source: Blockchain
Lina Seiche, Managing Director of the Bitcoin news portal BTC Times, sees this cooperation as beneficial, which is why she points to the long-term time horizon of the share price development and emphasises the strength of the hashrate.
„Since the third halving, the hashrate of #Bitcoin has increased by 18% and since the second halving, the hashrate has increased by 9,300%. Since the first halving it has even increased by 554,000,000 %“, she states.