The price of Bitcoin, the largest cryptocurrency by market value, remains stuck at around $19,000—but Bitcoin mining difficulty just jumped 13.55%, the most since a 21.53% increase in May 2021.
This surge is due to “a combination of several factors,” said Daniel Frumkin, director of research and mining insights at Braiins, a Bitcoin mining company.
For one, there’s the latest delivery of new rigs reaching miners.
“Large infrastructure build-outs, which are six to 18 months in the making, are steadily being completed, enabling more new-generation hardware to be plugged in,” Frumkin tells Fortune. This includes the 140 terahashes per second (TH/s) Antminer S19 XPs, which are “finally being delivered and deployed at scale.”
Others in the space agree, including Youwei Yang, chief economist at Bitcoin mining company BIT Mining Limited (BTCM), who notes that the mining rig deliveries are the “primary reason.”
“As many people know, Bitcoin miners have been trying to find their new homes after the China ban in May 2021. Some are quicker than others, but the majority of capacity has not been reached until recently, as many have finally settled,” Yang says. “The new-generation mining rigs are actually a major factor, as [late] last year, many purchased mining rigs via forward contracts, and now is the concentrated delivery time.”
Secondly, the price of advanced mining rigs has declined alongside the price of Bitcoin in recent months.
Miners who purchased hardware at “elevated prices in 2021 and early 2022” have a “marginal cost of production below the Bitcoin price, but a total cost of production close to or even above the Bitcoin price,” Frumkin said.
Less downtime also is a contributing factor. “Miners in places like Texas shutting down during hot afternoons was a frequent occurrence for the past few months,” Frumkin said, and there’s “a lot less downtime” for miners now that summer is over.
Overall, the heightened mining difficulty is going to hurt a lot of miners who are struggling to retain a profit margin during the bear market.
“Miners will stay online as long as their marginal cost to mine one Bitcoin is below the Bitcoin price, but they aren’t truly profitable when factoring in the cost of their hardware,” Frumkin tells Fortune. “Many miners right now are in this situation where the depressed profit margins are extremely painful, making it unlikely to break even on recent hardware purchases. But they haven’t yet hit levels that would force them to shut off completely.”
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