- After the Chinese government shut down mining farms in the country, the Bitcoin hash rate and mining difficulty took a steep drop.
- The decline in mining difficulty suggests less competition on the network.
- Although the rate is unlikely to recover significantly soon, the next difficulty adjustment is expected to be less severe.
Bitcoin recorded its largest difficulty drop in history, following China’s recent crackdown on cryptocurrency mining. On July 3, mining difficulty dropped by nearly 28% at block 689,471.
Bitcoin price jumps $1,000 as transaction fees drop in tandem
The mining difficulty of Bitcoin measures the computational power needed to validate BTC transactions. The network adjusts the difficulty level every two weeks to reflect the level of competition between miners. The recent plunge in difficulty suggests that there is less competition.
The sharp decline in mining difficulty led to transaction fees plummeting, which may have contributed to the surge of $1,000 in Bitcoin price.
Charlie Morris, the CIO of ByteTree Asset Management, noted:
Nice Bitcoin price move as the downward difficulty adjustment passes as expected this morning. Fees already $6 over the past hour compared to $10 yesterday.
On May 29 and June 13, mining difficulty slumped by 16% and 5%, respectively, according to BTC.com. The recent difficulty adjustment marks the third straight decline since December 2018.
In May, China announced that it would be getting tough on crypto mining and trading due to the financial risks that the new asset class poses. Although a ban on digital assets is not new in the country, it reiterates previous standings on the risks of virtual currencies to economic stability in light of recent volatility.
Previous prohibitions on Bitcoin and other cryptocurrencies were only targeted at trading and transactions. However, this time, China has imposed a blanket ban on digital assets.
Responsible for an estimated 65% of the network’s hash rate, Bitcoin miners in China were ordered to shut down after the government announced a ban on mining activities.
Cryptocurrency mining was a multi-billion dollar industry for Chinese miners. Now, they have resorted to moving their operations elsewhere or selling mining machines to foreign mining farms. Bitmain, the largest mining rig maker, has even halted its sales temporarily since late June after the cost of top-tier machines plunged by about 75%.
Despite Bitcoin price losing half its value since Chinese miners were forced to cease operating in the country, the network is now less reliant on its government.
The reduction in hash rate and dip in mining difficulty is expected to be less severe when Bitcoin sees another adjustment in two weeks.