In the past few weeks, the Bitcoin (BTC) mining market has seen a black swan event that has created a great deal of uncertainty and confusion about the future of the market. Because of this, I felt it was right to give the public a quick update and explain why it is a fantastic time for bitcoin mining in the United States.
Bitcoin miners are rewarded with Bitcoin for securing the network and for every block they mine. As more miners participate, the level of difficulty increases and the reward for the safety contribution of each individual miner decreases. Conversely, if fewer miners participate, the level of difficulty decreases and the reward for each miner’s contribution increases. Understanding this is key as to why this is an exciting time to get into mining.
Related: A misstep in the trade war? China is leaving the crypto battlefield to US banks
Recently we saw a historic decline in the difficulty rate. This graph shows the initial impact of Chinese miners being forced to shut down and emigrate from China.
Related: The practice in China shows that industrial Bitcoin mining is a problem for decentralization
There are many possible reasons for this, but the net result is that an exodus of Chinese miners and their equipment has begun. As of July 2, the rate was adjusted by -27.94 percent. It is the fourth negative adjustment in a row, “whereby the level of difficulty has almost halved since mid-May”.
Let’s take a look at the last block time intervals.
Even with record-high Bitcoin prices, we still expect further rate cuts in the near future.
The decline in difficulty wasn’t over at this point, however, and with the additional drop of over 27% in early July, volatility is still coming as the network catches up with the impact of all those miners going offline. These events caused many dramatic and rapid changes in the crypto mining market, but their impact can be reduced to three major changes:
- There is a shortage of inexpensive power mining sites and power infrastructure in the market. There is simply not enough infrastructure to meet the demand from Chinese miners.
- Equipment prices are falling rapidly and miners’ profitability is increasing. We expect equipment prices to fall to all-time lows amid the flood of equipment, while mining profitability rises. As a result, we estimate that after adjusting the difficulty level, the profitability of mining will increase by 35%.
- Cheap power locations can take a year or more to negotiate, contract, and develop. Given these circumstances, current operators have a unique opportunity as they already have established resources and partnerships to leverage.
The last time the difficulty rate was around 15 trillion was in January 2020, with Bitcoin being worth only $ 7,000. BTC is currently priced at around $ 32,000, more than four times that. With cheap hardware for mining and the high price of Bitcoin, the chance in Bitcoin mining has never looked better. At the moment it’s not about the mining equipment, but more about the infrastructure.
As all investors know, when to invest is when the cost is heavily discounted. This is now the case for bitcoin mining.
This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
William Szamosszegi is the CEO and founder of Sazmining Inc., a cryptocurrency mining developer and advisory company, and host of All About Crypto Mining: The Sazmining Podcast. He is optimistic about the future of Bitcoin as the dominant global digital reserve asset and believes that Bitcoin is the first-level solution to solid money. William grew up in Maryland and studied psychology and management at Bucknell University. William spends his free time doing sports, meeting friends and reading.