Where is the death spiral? Bitcoin mining difficulty has risen 9% since the halving

Bitcoin mining difficulty has increased by 9% since the May 11, 2020 halving, suggesting that the Bitcoin ecosystem remains healthy despite miners’ concerns about a death spiral.

After the Bitcoin halving, some skeptics speculated that miners would begin to capitulate, or that the price of Bitcoin would send miners into a death spiral. Just three months ago, Bitcoin's total network computing power (hash rate) reached an all-time high. The term "miner capitulation" refers to the stage when the price drop causes most over-leveraged miners and mining farms to shut down. Miner capitulation could cause Bitcoin's hash rate to drop significantly in the short term, but Bitcoin's hash rate has not dropped significantly since May.

Historically high hash rates and stable Bitcoin mining growth are both positive signs for the medium- to long-term trend.

The rise in the total network hash rate is beneficial to Bitcoin in the long run

According to data from Glassnode, Bitcoin mining difficulty increased by 3.6% on August 24 and has now reached a new high. The data shows that many miners are actively mining Bitcoin, even more than before the halving.

Bitcoin mining difficulty and Bitcoin price. Source: Glassnode

While Bitcoin’s hash rate has been setting new records for years, this time is a little different.

Three months ago, Bitcoin experienced its third halving in history, which reduced the amount of Bitcoin miners can earn by 50% every four years, even though they spend more on electricity and other operating costs, and the global output of Bitcoin also dropped from 1,800 Bitcoins to 900 Bitcoins.

In theory, rising Bitcoin prices should offset the lost Bitcoin block rewards for miners, but in order for mining to become more attractive, the price of Bitcoin would have to at least double in the short term.

The rapid recovery of the network’s hash rate since the halving and the historically high difficulty suggests that miners expect strong mid- to long-term Bitcoin price action.

Another reason behind the surge in the network’s hash rate could be that Chinese miners are starting to see an uptick in profitability. Sichuan province is currently experiencing its rainy season, and the region’s abundance of hydroelectric power plants has given miners access to cheaper electricity, thus reducing their overall costs.

A confluence of cheaper electricity in China and miners’ optimism about Bitcoin’s price appears to be catalyzing the hash rate.

Since the halving, the difficulty has increased by 9%, and the growth of the total network hash rate is bringing miners closer to capitulation

Does the increase in the total network hash rate mean a reduction in miners’ selling pressure?

Willy Woo, an on-chain analyst, previously said that miners are one of the two main sources of external selling pressure on Bitcoin prices. When miners sell Bitcoin, it tends to exert huge pressure on the cryptocurrency market.

Based on mining difficulty and hash rate trends, miners are unlikely to sell BTC en masse any time soon.

Unless the price of Bitcoin drops drastically to a point where miners can no longer maintain operations for some time, momentum in the Bitcoin mining industry is likely to continue to remain strong.