Bitcoin Mining Difficulty Drops Sharply, Largest Decline Since China's 2021 BTC Mining Ban
Bitcoin mining difficulty dropped by 7.32% on December 6, as BTC miners shut down operations amid the ongoing brutal market downturn.
According to data from BTC.com, the Bitcoin mining difficulty adjustment at block 766,080 fell by 7.32%, marking the largest decrease since July 2021. This was when many miners were forced to cease operations and exit the network following China's widespread ban on the industry, which at that time was a major hub for Bitcoin mining.
Bitcoin Mining Difficulty Change as of December 6, 2022. Source: BTC.com
Bitcoin mining difficulty is automatically adjusted based on the network’s computational power or hashrate to maintain a block time of approximately 10 minutes. Higher hashrate results in higher difficulty and vice versa, meaning more mining hardware increases difficulty.
The sharp drop in mining difficulty is attributed to Bitcoin miners struggling with low Bitcoin prices, which have reduced their revenues, and high electricity costs, which have increased expenses. Data from late November 2022 shows that Bitcoin mining revenue is at a two-year low.
Top BTC miners like Core Scientific, Argo Blockchain, and Iris Energy are facing liquidity shortages, while Compute North has officially filed for Chapter 11 bankruptcy.
The crypto winter has evidently caught up with the Bitcoin mining sector, with miners hurriedly shutting down their operations. This is evident not only from the drop in mining difficulty but also from the decline in BTC hashrate, which started around mid-November 2022 as profitability took a hit. Nevertheless, hashrate remains significantly higher than the levels seen after China's crackdown on the industry.
The surge in Bitcoin prices in 2021 led many mining companies to achieve superprofits, prompting them to rapidly scale up their operations by investing heavily in new equipment.
For example, the mining giant Marathon Digital acquired 78,000 Bitcoin miners in 2022, worth nearly $900 million. The industry's allure was further amplified by Intel's release of a new Bitcoin mining chip.
However, as expectations were high for a promising 2022, the industry was hit by a series of unexpected disruptions, including the collapse of LUNA/UST, the stETH-Alameda-Celsius chain reaction leading to the Celsius-Three Arrows Capital (3AC) liquidity crisis, and the FTX bankruptcy. These events caught mining companies off guard, forcing them to seek exit strategies to mitigate losses.
