Bitcoin mining difficulty witnessed a sizeable drop of 7.3% at a block height of 766,080. The last largest downward difficulty adjustment of nearly 28% occurred seventeen months ago, on July 2021, when miners moved out of China en masse after the CCP’s blanket ban.
This was the largest reduction of 2022, which comes as the mining industry continues to reel under immense stress, given the depressed prices, soaring energy costs, and debt burdens.
The Strain on Bitcoin Miners
The mining difficulty is an essential part of the Bitcoin network, which readjusts every 2,016 blocks (nearly two weeks). This process makes it harder or easier for miners to do their job on the basis of the current computational output. While the network hash rate hovered near its all-time high figures, Bitcoin’s price has collapsed by almost 70%, putting strain on the profit margins of miners across the world.
Several mining companies are hurting due to the incessant bear market. While a few are cash-strapped, others are buried in debt.
The net income of popular Bitcoin mining firm Canaan plummeted to $8.6 million, decreasing by 88% in the third quarter of the year when compared to last year. Public-traded company Core Scientific reportedly lost around $1.7 billion since the start of 2022 as it anticipated bankruptcy. As of October, it held $32 million in cash, which the mining firm expects will be depleted by the year-end or sooner. Its BTC reserve slid to 62 BTC, down from 8,000 at the beginning of the year.
Compute North was the first domino to fall as a result of the depressed market, which filed for Chapter 11 bankruptcy in the US Bankruptcy Court for the Southern District of Texas in September to restructure its business under court protection.
More Decline Ahead?
With mining profitability thresholds turning negative, distressed miners have now resorted to unplugging and relocating machines. This has further intensified the already existing downward pressure on network difficulty.
A number of miners are nearing insolvency or are on the verge of using up their remaining credits before finally unplugging their machines and ceasing operations. In such a case, more downward difficulty adjustments could materialize in the near to medium term.
