The price of Bitcoin dropped below the $3,800 level on several exchanges on Monday, December 3, while the general pessimistic sentiment on the market reflected in declining Bitcoin’s network difficulty, which earlier today fell by more than 15 percent following the regular adjustment.
Mining difficulty is relative measure of how difficult it is to find a new block. This measure is adjusted every 2016 blocks as a function of how much hashing power has been deployed by the network of miners.
According to XDEX chief analyst Fernando Ulrich, this 15 percent difficulty drop is the second-largest in Bitcoin’s history and the largest since November 1, 2011, when the difficulty dropped by 18 percent.
In Bitcoin network, miners produce blocks by competing to solve complex mathematical problems. When the hash rate increases, blocks are found more quickly, while the opposite occurs when the hash rate declines. To maintain a consistent block time of around 10 minutes, Bitcoin’s difficulty is automatically adjusted at roughly two-week intervals to account for new machines entering or exiting the network.
For many years, the difficulty has been almost permanently increasing, while the overall growth of prices combined with rapid advancements in mining technologies has resulted in sustained rise of hash rate, even during periods of negative market trajectory. However, nearly one year into the bear market that has seen the price of Bitcoin fall by more than $16,000 from its all-time high in December 2017, things look quite different.
As noted by CCN, Bitcoin’s hash rate has been in decline since mid-October, with falling prices hastening the rate at which older miner models became obsolete and profit-driven firms at the margins started to turn off their devices to avoid operating at a loss. One estimate pegs the average cost of producing a new unit of BTC at $4,500, a mark BTC has generally traded below since Nov. 20, though the hash rate began to decline about one month prior. This miner exodus is now being reflected in Bitcoin’s network difficulty.
Prior to November 18, the last time the difficulty decreased was on July 15, and such decreases have been a rare occurrence over the past several years. At a present value of 37.7 EH/s, the BTC hash rate is down 39 percent from the single-day high of 61.9 EH/s it set in late August. It is also down approximately 31 percent from the weekly average peak it set on October 1.
Monday’s developments also saw the price of the flagship cryptocurrency taking an initial dive from around $4,300 down to $4,000, followed by further drop down to $3,800. At one point, at around 16:20 UTC, price of BTC on Bitstamp dropped as far as $3,745, while at the same time on Bitfinex it stood at $3,829.
At press time at around 21:45 UTC Bitcoin was changing hands at $3,907 on Bitfinex, down 7.20 percent over the last 24 hours, while its marker cap fell down to $67,7 billion.