The mining difficulty of Bitcoin is set to increase by 10% on or before Tuesday. This means that miners are going to spend more in their activity.
BTC.com reveals that the mining difficulty of Bitcoin could increase between today and Tuesday. This implies that there is an imminent rise in the cost of mining Bitcoin soon.
If this happens, miners will be forced to sell more BTC so as to reduce the expenses they will incur.
Participants on the Bitcoin network are divided into three categories namely: the users, developers and the miners. Users use nodes to send information, the miners use computers to process bitcoin transactions while developers set the rules that ensure the smooth functioning of the network.
The bitcoin network is halved every four years. It is a time when the amount of bitcoins that can be mined per day is divided by two. Before the last halving on May 11, 2020, BTC mined per day was 1800 but the amount has been reduced to 900 BTC per day since May 12, 2020.
The effect of halving is usually a drop in the gains made by miners and an increase in the cost of mining. The cost of mining increases two times and this causes their profits to reduce by half.
Will hash rates drop?
As a result of the increase in mining costs and reduction of their profits, many small miners are going to be forced out of business for a while.
The reduction in the number of miners will make the difficulty to mine to adjust spontaneously. The same result which was seen towards the end of April is likely to repeat itself.
When mining difficulty is adjusted, mining BTC will become cheaper so more hash rates will be generated by miners.
What is to be expected in the short term when mining difficulty increases by at least 10% is sales of BTC in the market. Miners will want to sell more than they mine per day and this will also put pressure in the market for a bearish situation.
Last week, there were less sales of BTC than were generated. Results from ByteTree revealed that while 7,356 BTC was mined, only 5,984 BTC were spent. This shows a positive balance for the week but the contrary will happen when 10% increase in mining difficulty happens. There will soon be a similar occurrence of what happened in the month of May.
Investors prepare for a bearish market
The price of Bitcoin depreciated by 9% not long after the US stock market made the most positive impact since March.
If it becomes more difficult to mine Bitcoins, miners will be forced to sell their BTC to get more money for operational costs. This will be necessary for another correction that will make the price of BTC bounce back until another difficulty comes around.