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Bitcoin mining difficulty reaching all time high

Bitcoin (BTC) mining is more popular then ever, as becomes clear from new on-chain data by BlockSpace. Historically, there is a strong correlation between the mining competition and the BTC price. What can investors expect? 

The bitcoin mining difficulty strongly correlates to the mining competition on the netwerk. If the amount of miners increases the algorithm automatically adjusts itself to make it harder for miners to get their BTC block reward. The algorithm also works the other way around, where a decrease in the amount of miners means it becomes costs less computative power to get the block reward. As mining costs a lot of money, time and effort miners will only start their endeavours if they believe the operation will become profitable.

Explosive growth in Bitcoin mining community

As becomes clear from Figure 1, we see a strong increase in the Bitcoin mining difficulty in the last year. This means more and more miners are competing on the blockchain. This is interesting, as the price of BTC has decreased over the last 12 - 18 months. This means miners are expecting to be profitable even with a lower price, suggesting they expect further prices increases of bitcoin.

Date: 19 juli 2023, By: Thomas


Figure 1: Bitcoin mining difficulty (BlockSpace)

Historic indicator of BTC price rally

The strong growth in mining competition is a historic indicator of a potential price rally. As can be seen from Figure 1, the red line indicates a period where the mining competition is increasing. This is followed by a green zone where BTC prices tend to rally. Currently, we have just experienced a very explosive increase in mining competition. Suggesting that a bitcoin price rally is immenent. 

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