Bitcoin may be in a bear market, but the mining industry is growing bigger than ever. Bitcoin mining difficulty set a new record for the sixth time this year on Tuesday, reaching 31.25 billion, according to mining data from Braiins. The 4.89% adjustment was the third largest increase this year.
Even though the price of the leading cryptocurrency has dropped sharply throughout April and May and continues to sit more than 50% below At its all-time high since the end of 2021, the growth of the mining industry is not slowing down. Traditional investors, retail buyers, and even day traders can be bearish on bitcoin, but miners are not. This article breaks down some of the data that demonstrates the growth of the mining sector despite the current bearish bitcoin market conditions.
Bitcoin mining growth data
Bitcoin price and mining difficulty demonstrated a fairly strong positive correlation throughout most of 2021. During the bull periods of early 2021 followed by the China ban-related crash in the summer and a market rally for closing the year, both metrics moved very close together. But difficulty and price generally only correlate positively during bull markets when both metrics rise together. The line chart below shows the price and difficulty data for the last three years, and over the last six months, as the price of bitcoin has fallen, the difficulty of mining has continued to rise.
Despite consistently setting all-time highs this year, all of the difficulty increases have been fairly slight in percentage terms. The difficulty continues to increase as more miners implement a new hash rate, but none of the increases in 2022 have been 10% or more. At the end of January, the difficulty increased by 9.3%, but all other increases have been about 5% or less. The bar chart below shows a simple order of all historical difficulty increases since ASIC mining hardware entered the market in late 2012. But none of these adjustments occurred in 2012.
Difficulty increases come from a higher hash rate, which means an increasing amount of computing power is spent to process transactions for the Bitcoin network and protect the integrity of its distributed ledger. This is objectively a good thing for Bitcoin. But for the economy of some miners, it is not always something to celebrate because as the difficulty increases, the hash price falls.
The hash price is a measure of the expected revenue per unit of hash rate that a miner contributes to the network. The hash price goes up when the price of bitcoin increases faster than the difficulty. It also goes up when the price of bitcoin falls slower than the difficulty. But when the difficulty rises and the price of bitcoin falls, as it does in current market conditions, the price of the hash plummets.
The line chart below shows hash price and difficulty data since the beginning of 2021 and the sharp drop in hash price is obvious as difficulty increases.
So while more miners securing the network is fundamentally bullish, it may be bearish for the mining economy, especially in a down-trending market.
Timing of Bitcoin mining growth
For anyone not intimately familiar with the dynamics of bitcoin mining, it is reasonable to wonder why the sector continues to grow despite an ongoing bear market phase. Some general reasons offer some explanation for this growth, and the next section on where the growth is happening now will add more context.
Mining projects, from inception to full deployment, are time-consuming and capital-intensive projects. Much of the hash rate being added to the network now was planned at least two years ago. After battling supply chain delays and disruptions during the global COVID-19 response, miners are not ignoring market conditions but simply finishing projects they began planning years ago.
Bear markets are often more favorable conditions for starting new mining operations anyway. Hardware is cheaper. The hype has dissipated. Focus is easier to maintain. And miners who join the industry in the heat of a bull run tend to have a significantly higher chance of failing or being pushed out of the market compared to miners who start building in bear markets. And more important to most miners than current price fluctuations is the block subsidy schedule. The next reward halving is almost exactly two years away, which means miners are building now to capitalize on most of the remaining 6.25 BTC period until it ends, and some miners are inevitably left out of the market.
Additionally, while this article has repeatedly referenced the current bitcoin “bear market,” it is worth noting that there has almost never been a true bear market period for bitcoin hash rate growth and, by extension, for the difficulty. China’s mining ban caused a historic break from the normal upward and rightward trend of hash rate growth, but now growth is back to normal. As the line chart below shows, the hash rate is almost always in a bull market.
Breakdown of mining growth
So where is the growth in the mining sector happening? Domestic and small-scale miners are still very active in building their own operations and using many of the new products and services focused on retail which was released during the bull market. Twitter and other social networks are saturated with photos and videos of home mining setups.
Public miners also continue to plan large expansions. For example, Riot Blockchain, one of the leading mining companies in the market, Announced a new one gigawatt facility planned for Navarro County, Texas, in addition to the 400 MW facility already developed in Rockdale. Other market leaders like Bitfarms Y scientific core It also made recent announcements of considerable growth.
Even local cities and municipalities are getting into the mining industry, albeit on a very small scale. Bitcoin mining startup MintGreen is working make North Vancouver the world’s first city heated by bitcoin mining. And the city hall of Fort Worth, Texas voted to approve support to launch a small government-run mining pilot project with some Antminer S9 machines.
Some of the most exciting growth for the general bitcoin public comes from news of an increasing number of energy and utility companies exploring the mining industry. The Hungarian subsidiary of the multibillion-dollar utility company E.ON has been running a pilot mining project for months with expansion plans. Some of the largest US oil producers, ExxonMobil and ConocoPhillips, are also building alliances with miners. And the miners are saturating the Permian Basin with educational efforts to build alliances with other energy producers.
Despite bitcoin’s bearish price action, the mining industry is still in its own bull market. And while continued hash rate growth despite downward price trends means declining revenue for some miners, the aggregate growth of the industry is a strong signal of network security and resilience. in the long term of the entire bitcoin economy.
This is a guest post by Zack Voell. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.