24 Jan 2022

Bitcoin difficulty at all-time high

Difficulty at an all-time high and a lower bitcoin price means that bitcoin miners’ profit margins are under pressure. Will the difficulty keep increasing, eating up bitcoin miners’ profits?
Source: CoinMetrics
Difficulty is a measure of how difficult it is to find a valid block. Every 2016 block, or approximately every two weeks, Bitcoin automatically adjusts the difficulty based on the block production rate during the previous 2016 blocks.Because of the rising hashrate, blocks have been produced faster than the desired rate, and Bitcoin increased its difficulty in response.The difficulty has climbed since the end of the summer and is now sitting at an all-time high. Since peaking in November, the bitcoin price has decreased by almost 50%, but the difficulty has kept increasing.The difficulty will likely keep increasing since many Chinese miners who moved abroad during the summer should be coming online again soon. Also, most public mining companies have announced vast orders of the most powerful machines scheduled for delivery from July until December.The profitability of bitcoin mining is under pressure by two forces: The growing difficulty and the declining bitcoin price. Therefore, 2022 could be hard for bitcoin mining stocks unless we see another bitcoin bull market.Miners with reasonable power prices still earn great margins, although the margins have decreased considerably since peaking in October.
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