The difficulty of the entire network has reached a new high. Let’s understand the current mining market from several indicators.

Written by: Ade

At 10:56 on September 20, the Bitcoin network ushered in a difficulty adjustment at block height 649152, with the mining difficulty increased by 11.35% to 19.31T, reaching a record high.

As of September 23, BTC.com data shows that the current unconfirmed Bitcoin transactions are 38,772, the total network computing power is 135.51 EH/s, and the 24-hour transaction rate is 3.99 txs/s. There are still 11 days and 3 hours before the difficulty adjustment. It is expected that the next mining difficulty will increase by 7.76% to 20.81T, which may once again set a new record high.

ChainNews analyzed the current mining market from the perspectives of on-chain data and market data. The analysis found that miners are currently negative about the short-term price of Bitcoin, but continue to be optimistic about its subsequent development. At the same time, the arrival of the dry season will also bring new challenges to the mining market, as well as huge development potential hidden in the crisis.

Bitcoin difficulty continues to rise after halving

After the Bitcoin halving in May this year, some people worried that Bitcoin miners would enter a death spiral, that is, the decline in miners' income would lead to the closure of mining machines, and the closure of mining machines would reduce computing power, and the reduction in computing power would further affect the price and cause more mining machines to be closed. But in fact, after a brief decline in the difficulty of Bitcoin mining in early June, the computing power has been rising all the way, and the mining difficulty has reached a historical high of 19.31 T, and the mining difficulty will increase further in the future.

Data sources: CoinmarketCap; btc.com

The increase in the difficulty of Bitcoin mining means an increase in computing power (i.e., hash rate). The reason for the increase in computing power is the combined influence of many factors. In summary, there are only two aspects: one is that miners deploy more mining machines to mine, and the other is that miners update mining machines with higher computing power. The mining industry requires large investments and a long payback period. No matter which factors affect the increase in computing power, they all point to one conclusion, that is, in the long run, miners are optimistic about the mining industry and the Bitcoin market.

Data source: Glassnode

Two indicators show miners are selling Bitcoin

Miners' Position Index (MPI) is a miner position index that shows miners' views on the short-term Bitcoin price trend. An MPI index higher than 2 indicates that miners tend to sell Bitcoin after mining; if the MPI is negative, it indicates that they are optimistic about the short-term trend and choose to hoard Bitcoin.

As can be seen from the figure below, in the first half of 2020, miners only had two brief selling intentions in March and May, and the MPI index was basically below 0 for the rest of the time; however, after entering July, the MPI index has repeatedly exceeded 1.5, especially when the Bitcoin price was US$11,500 and US$12,000, miners showed a very strong intention to sell.

Data source: cryptoquant.com

On September 17, the MPI index was 1.83, when the price of Bitcoin was around $11,000. This value showed that miners were choosing to sell Bitcoin at high prices; as of September 22, the MPI had dropped to -0.51.

Another indicator can also show the recent selling behavior of miners. According to ByteTree data, in the past week, miners mined a total of 6,594 bitcoins, but sold 7,150 bitcoins, reducing the overall stock by 556. In the past 12 weeks, miners have basically maintained a state of selling 246 more bitcoins per week, which also shows their pessimistic attitude towards the short-term market.

Data source: ByteTree

The SOPR indicator shows that the current market sentiment is cautious

The SOPR ratio is one of the indicators to measure market sentiment, which was developed by Renato Shirakashi. When SOPR> 1, it means that the owner of Bitcoin makes a profit when trading; otherwise, it loses money. During the black swan event on March 12, the SOPR ratio dropped significantly, indicating that the market as a whole fell into a panic phase; but as the price of Bitcoin recovered later, the SOPR ratio increased.

Data source: Glassnode

As Bitcoin has recently retreated from a high of $12,000 to $10,400, the SOPR ratio has also fallen from 1.034 to around 1. This also shows that market sentiment has returned to normal in the short term, but it also remains cautious about the market outlook.

As the dry season approaches, Chinese miners face many challenges

At present, Chinese practitioners in the Bitcoin mining industry are facing many problems: 1. The flood season for Chinese miners is about to end. If they adjust their business during the dry season; 2. There is a shortage of new and old mining machines. Affected by the epidemic and other factors, the production capacity of new machines is not high, and their costs are also high. However, old mining machines, led by S9, will gradually shut down with the arrival of the dry season; 3. China's direct power supply policy for mining is relatively unstable. How miners can obtain compliant, low-cost and stable electricity resources has become a top priority; 4. Mining overseas has become a new development trend. The regulatory attitude of North American countries is becoming more and more positive. The mining companies they belong to will seize the mining market share with more professional, financialized and systematic operation models.

Crisis will also breed new development opportunities. Wang Xin, marketing director of Shenma Mining Machine, previously said at the "World Mining Conference - Xiamen Station", a branch of the "Third China (Xiamen) International Blockchain + Business Future Development Summit" co-organized by Lianwen and Winkrypto, that the superposition of the 2020 flood season and the halving of Bitcoin means that the logic of mining has changed greatly, and many new opportunities in the industry can no longer be considered from the original perspective. At present, overseas resources and global resources have become a trend. In the future, the global layout will start from the flood season and develop from the dry season, bringing greater vitality to the development of the entire industry.

In summary, miners are optimistic about Bitcoin mining in the long term, but remain cautiously optimistic in the short term. At the same time, the oligopoly of Chinese miners may face a greater test, and the rise of mining in North America may become inevitable.