On-chain data shows that Bitcoin is now retesting the cost of production for miners, suggesting that this group may soon find relief.
Bitcoin Miners May Find Relief After Period of Huge Stress
According to data from an on-chain analytics company Glassnode, the average cost of production for current miners around the current price level. The relevant indicator here is the “difficulty regression model,” which is an estimate of the cost of Bitcoin production that an average miner would incur.
As you know, this model is based on the concept of “mining difficulty,” which is a feature built into the BTC block that decides how hard miners must work in order to mine blocks on the network.
For this model, Glassnode has made the assumption that difficulty is “the ultimate distillation of mining costs, listing all mining variables into one number.”
To relate difficulty to market cap (so that production cost “price” can be obtained from the metric), the model uses log-log regression analysis.
Now, here’s a chart showing the trends in the Bitcoin difficulty regression model over the past few years:
Looks like the price of the crypto has been approaching the metric in recent days | Source: Glassnode on Twitter
As the chart above shows, the Bitcoin difficulty regression model has a value only around the current BTC price level. This means that the mining fee of 1 BTC that the average miner has to pay according to this model is currently in terms of what is called crypto itself.
The chart also includes data for “double difficulty,” which is a metric that simply highlights the gap between a coin’s current price and the difficulty regression model. A negative value of the indicator indicates that the price is higher than the cost of production for current miners, while it is lower in the case of a positive value.
From the chart, it is clear that many difficulties have been positive since the FTX crash, which shows that during the last few months, the average miner produced Bitcoin at a loss.
Miners have been under great pressure in the bear market due to many factors such as falling prices and higher electricity costs, but this time since the fall of FTX made their income worse, leading to many bankruptcies. names in sectors such as Scientific Core.
However, if the current price retest of the level of the difficulty regression model is successful and BTC breaks further, miners will finally be able to get some relief after what has been a really bad run.
BTC price
At the time of writing, Bitcoin is trading around $18,900, up 13% over the past week.
The value of the asset seems to have sharply surged in the last few days | Source: BTCUSD on TradingView
Featured images from Brian Wangenheim on Unsplash.com, charts from TradingView.com, Glassnode.com