Glassnode shows that Bitcoin mining is in remarkable equilibrium

Data from Glassnode shows that Bitcoin mining has remained in an almost perfect equilibrium throughout the history of BTC, thanks to the difficulty function.

Bitcoin miners have spent almost as many days in profit as they have in losses

According to a new report published by chain analysis firm Glassnode, BTC miners have been making profits lately. To know whether Bitcoin miners are making a profit or a loss, the difference between their income and expenses is taken.

The firm defines its “mining revenue” as the sum of the total value of coins that miners issue (that is, the BTC they receive through mining block rewards) and the transaction fees they receive for handling transfers.

Regarding expenses incurred by these chain validators, Glassnode has assumed that the “mining difficulty” metric encapsulates information about all mining-related metrics into one, and thus can be used as a reliable way to calculate their costs.

The mining difficulty here refers to a feature of the Bitcoin blockchain that controls how difficult miners currently find it to mine on the network. The reason this concept exists is that the BTC network aims to keep the production rate of BTC constant, no matter how much computing power the miners have connected to the network.

For example, when miners connect more mining machines to the network, the difficulty of the next periodic adjustment increases, so miners cannot use this extra power to produce a larger amount of Bitcoin than usual.

A feature such as the difficulty that exists on the network has far-reaching consequences for the BTC economy. As Glassnode suggests, “the net result is that mining is a hyper-competitive industry, with BTC production costs steadily approaching the break-even price for the average miner over the long term.”

Now, to more easily see the impact the difficulty has had on the network, the firm has mapped the number of profitable and unprofitable days that miners have experienced throughout the asset’s history.

Profitable and unprofitable days for the BTC miners | Source: Glassnode

Here, as mentioned before, the days are divided into profitable and unprofitable using whether the mining revenue was more or less than the production costs (calculated using a model based on the difficulty level) on a given day.

Interestingly, so far in Bitcoin’s lifetime, the average miner has spent 2,184 days enjoying profits, while they have spent 2,447 days in losses. This means that 47% of all days have been profitable, which means that there is a fairly even distribution between profitable and unprofitable days.

“According to economic theory, a perfect market is one where supply and demand reach equilibrium, and the price of the asset approaches the cost point (production price),” explains Glassnode. “Given how close these numbers are to a 50:50 condition, one could argue that the difficulty adjustment has done a remarkable job of targeting just such an equilibrium.”

BTC price

At the time of writing, Bitcoin is trading around $27,700, up 2% in the last week.

BTC has moved sideways recently | Source: BTCUSD on TradingView

Featured image from Brian Wangenheim at Unsplash.com, Charts from TradingView.com, Glassnode.com