After Mining Readjustment Bitcoin Difficulty May Fall 14%

After recording an all-time high on March 1, 2020, Bitcoin‘s hash rate dropped dramatically as an unexpected price dip snuffed out its 2020 gains. The drop in hash rate continued as more and more miners left the network due to mining unprofitability. This decline in hash rate was the largest ever in absolute hashing power in Bitcoin network’s history and may lead to lower mining difficulty, according to the data provided by Glassnode.

The price crunch caused a domino effect. First, a lower Bitcoin price led to mining overheads such as electricity costs and infrastructure to exceed the revenue, meaning that it was costing miners more to obtain Bitcoin, than to sell it. This forced miners out of the network and led to the subsequent reduction in hash rate.

The reduction in hash rate has slowed down the blockchain. The blocks appeared at a significantly lower speed. As Glassnode indicates, the speed of block mining was up to 25% slower than the 10-minute target, increasing the block time to levels unseen since the price fall of 2018. The approximate time needed for mining one block was 12.5 minutes.

The reduction in hash rate has influenced miner rewards in terms of Bitcoin. As the blocks are mined at a slower speed, fewer blocks are being mined, which incurs lower block rewards. Thus, the generated revenue is also restricting miners.

However, if we consider the revenue in USD, it has seen a more drastic decrease, as low revenue per block is combined with fewer blocks in total. The dipping Bitcoin price created a feedback loop which can be seen on the image below.

The feedback loop may be interrupted only when Bitcoin mining difficulty readjusts. Despite a decrease in hash rate, mining difficulty has remained high and still needs to readjust after the dip as slower block times have delayed the expected date of the next adjustment. The next adjustment was expected to occur sometime on March 25, with the difficulty dropping by approximately 14.7%, making it the biggest adjustment in history.