Bitcoin mining difficulty has increased significantly, which may be a sign of a recovery in the price of the currency

The dynamic adjustment mechanism of Bitcoin mining difficulty is the key to the success of this consensus mechanism. Yesterday, the difficulty of Bitcoin mining was raised by nearly 7% to 16.55T at one time. According to btc.com data, the current Bitcoin network computing power is 121.95EH/s. There are still 12 days before the next difficulty adjustment. It is expected that the mining difficulty will rise again by more than 7% to 17.75T in the next difficulty adjustment, which will further refresh the historical high level.

The difficulty of Bitcoin mining is generally adjusted every two weeks or every 2016 blocks. When miners enter the market, the difficulty of mining will rise simultaneously, which will make it more difficult to obtain new block rewards. If miners stop mining, the difficulty of mining will decrease and the market will be in a relatively dynamic equilibrium.

Bitcoin's PoW hash rate is the computing power required to modify or attack the network. The continuous increase in hash rate means that more and more miners are participating in this market, which also means that the security of the Bitcoin network has been improved synchronously. To attack the Bitcoin network, the attacker must provide more computing power than the sum of all computers currently mining Bitcoin. With the increase in hash rate, the possibility of Bitcoin facing such an attack has become almost zero. Generally speaking, the increase in hash rate is often a precursor to the rise in coin prices.

Market analyst @BitcoinPrinter recently tweeted that the green line in the figure below shows the increase in Bitcoin price after each difficulty increase of more than 5% since 2015 and before the next difficulty adjustment, while the red line shows the decrease in Bitcoin price in the next time period under the same standard. As can be seen from the figure, although the increase in mining difficulty does not mean that Bitcoin price will definitely rise, it is obvious that the price increase is an absolute high probability result in a period of time after the mining difficulty increases significantly.

There have been analyses that believe that the halving of Bitcoin rewards will trigger miners to leave the market, because the decline in mining rewards will make mining unprofitable and trigger a death spiral of declining hash rates. However, the possibility of this happening is very low, because in this highly competitive industry, compared to the extreme situation of a death spiral, the more likely result after the halving of rewards is that small miners with lower profit margins will be swallowed up by large miners.

From the perspective of market supply and demand, the reward halving can be easily understood as a decrease in supply while market demand is stable and rising, and this change is expected to drive prices up. Miners who can still maintain stable output after the halving will reap more substantial profits after this adjustment.