Soaring energy costs hurt bitcoin miners, but the price of the currency will usher in the day?

Soaring energy costs could lead to a major shakeout within the bitcoin mining community, according to the crypto industry's largest ETF operator.

According to Josh Olszewicz, head of research at Valkyrie Investments, a digital asset investment management firm based in Nashville:

“Ultimately, the least efficient miners will be hit the hardest. If electricity bills keep rising, that will erode their profitability.”

That was reflected in the price of Valkyrie Capital's renewable energy-focused bitcoin mining ETF, which fell 19% over the past three sessions before rebounding on Tuesday. Valkyrie Capital's Bitcoin mining ETF, which launched in February, was up about 7.9 percent to $23.27 as of 2 p.m. in New York.

Soaring energy costs hurt bitcoin miners, but the price of the currency will usher in the day?

Bitcoin mining is an energy-intensive industry, and miners require a lot of electricity and specialized computers to ensure that the Bitcoin network works well and is rewarded in tokens. Therefore, the cost of energy is one of the most important factors in determining how profitable a miner is.

As we all know, miners mine blocks, and Bitcoin is the reward for miners after mining blocks. Blocks in the Bitcoin network are added to the Bitcoin network at a fixed and predictable rate, with a block added every 10 minutes or so. However, the speed at which miners discover blocks is inconsistent, depending on the number of miners on the network and the computing power generated by the miners.

As energy costs become higher, less efficient Bitcoin miners will be squeezed out of the market, mining competition will become smaller, the computing power of the entire Bitcoin network will become weaker, and the speed of discovering blocks will become slower, thereby raising the price of coins. price.

In addition, the mining difficulty (Difficulty) affects the mining speed of miners. Mining difficulty is used to measure the difficulty of Bitcoin mining. A lower mining difficulty indicates that the computing power of the entire Bitcoin network is reduced. Bitcoin’s mining difficulty dropped for the first time since December, according to data from BTC.com.

Under normal circumstances, the decrease in mining difficulty will also lead to a rapid decrease in the transaction fee between coins, and the decrease in transaction fee will greatly increase the transaction volume between mainstream coins, and the increase in transaction volume will help the currency price to rise.

On Wednesday, Bitcoin swept away the previous haze, rising more than 7% within the day, standing at the $41,000 mark.

Soaring energy costs hurt bitcoin miners, but the price of the currency will usher in the day?

In late January, before Russia invaded Ukraine, the 2-week increase in mining difficulty was as high as 9.32%, the third-largest increase in mining difficulty since last year. (Note: The setting of Bitcoin is that the mining difficulty is adjusted once every 2016 blocks. The average block time of Bitcoin is 10 minutes, which is exactly adjusted once every 2 weeks.)