Bitcoin mining difficulty drops 11%! The largest decrease since China's "big crackdown" in 2021

Mempool data shows that Bitcoin mining difficulty was cut by 11.16% in a single adjustment on February 7, dropping to 125.86 T (Trillion). This is not only the largest decrease since China’s comprehensive ban on mining in 2021 but also ranks among the top 10 largest difficulty reductions in Bitcoin history. This mining difficulty adjustment occurred at block height 935,424, with difficulty dropping sharply from the previous 141.67 T. Prior to this, due to a significant decline in total network hash rate, the average block time was extended to about 11.4 minutes, well above the Bitcoin protocol’s 10-minute standard, indicating that many miners are “pulling the plug” and withdrawing. The main reason for the sudden drop in mining difficulty is a nearly 20% sharp decrease in the total network hash rate over the past month. According to Luxor’s hash rate index, just last week’s hash rate fell by 11% to 863 EH/s, far below the 1.1 ZH/s peak reached in October last year. The rapid retreat of hash rate is driven by two key factors. First, a sharp drop in Bitcoin’s price. Since reaching an all-time high of $126,000 in October last year, Bitcoin has been declining, with a total drop of over 43%. On February 6, it briefly dipped near $60,000 before rebounding above $71,000. Market selling pressure mainly stems from high US Treasury yields, continuous outflows from Bitcoin spot ETFs, and heightened risk aversion in stock and commodities markets. According to SoSoValue data, US Bitcoin spot ETFs turned net sellers by 2026, becoming a significant market dampener. The second impact comes from non-market factors. In late January, the “Fiona Winter Storm” that hit the US caused power loads in multiple regions to tighten, forcing mining farms to reduce or halt operations to prioritize residential electricity needs. Statistics show that this storm caused about 200 EH/s of hash rate to go offline, with major miner Foundry USA’s hash rate dropping an astonishing 60%. Miners’ profitability has also hit a bottom. The key indicator measuring miner revenue—“Hashprice,” which is the expected income per unit of hash rate—fell to a historic low of $33.31 per PH/s per day on February 2; the average daily value on February 1 was only $34.91. Ben Harper, head of Luxor’s derivatives division, pointed out that the market generally considers $40 as the critical threshold for miners to keep their operations running. Now that the hash price has fallen below $40, it means that most mining equipment is essentially burning money just to stay online. Currently, only the latest Antminer S23 series remains relatively profitable; older models like the Whatsminer M6 series and Antminer S21 are either on the verge of losses or already operating at a loss. From an overall profitability perspective, the situation remains bleak. According to Checkonchain data, the average cost to mine one Bitcoin is about $87,000, while the spot price hovers around $70,000, meaning the market price is approximately 20% below the cost. On the other hand, as on-chain activity in Bitcoin cools in 2024, transaction fees now account for only about 1% of miners’ revenue, down from roughly 7%, making miners increasingly reliant on rising prices to sustain operations. Despite the fundamental pressures, some analysts see a contrarian signal from historical data. VanEck noted in December last year that during past periods of hash rate decline, Bitcoin has about a 65% chance of experiencing a rally within the next 90 days.