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Bitcoin mining difficulty hits new all-time high as institutions show increased interest

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(Kitco News) - Bitcoin mining difficulty hit a new all-time high of 35.61 trillion hashes on Monday as new miners continue to join the network while existing miners ramp up their operations. The climbing difficulty comes in response to a total network hashrate of 257 exahashes per second (EH/s), which is near the record high that was reached last week. 

Mining difficulty is an automatically adjusting feature of the Bitcoin protocol that determines how difficult it is to mine a bitcoin block. The difficulty is adjusted higher or lower in line with changes to the hash rate, with adjustments occurring every 2016 blocks. The goal of the mining difficulty is to ensure that the block minting time stays at a steady one block every ten minutes. 

This latest adjustment represented a difficulty increase of 13%, which was the largest upward adjustment in the mining difficulty on the Bitcoin network since the middle of 2021.

Miners are likely to view the upwards adjustment negatively as it will make it more challenging for their mining rigs to mine new blocks, resulting in a decrease in revenue. 

Data provided by Glassnode shows that miner revenue has been steadily declining since late 2021, a fact that is made worse by the struggle for Bitcoin to make any noticeable gains above $20,000. The current miner revenue is estimated to be 4 BTC per day, or around $80,000.  

Despite these facts, institutional interest in Bitcoin mining is steadily increasing as evidenced by the launch of Luxor Hashprice NDF, a non-deliverable forward contract for Bitcoin mining “hashprice” launched by Bitcoin mining firm Luxor.

“While many derivative instruments exist for miners to hedge their Bitcoin price exposure, as well as their power and energy exposure, the space was lacking an instrument to easily hedge their hashrate exposure," Luxor Head of Derivatives Matt Williams said.

Along with allowing mining firms to hedge their hashrate exposure, Luxor Hashprice NDF will also allow proprietary trading firms, hedge funds and other investment firms to gain exposure to the bitcoin mining industry

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Payments will be settled using Luxor’s Bitcoin hashprice index as the reference rate for hashrate value, with contracts being paid out in dollars, BTC or a USD-based stablecoin. According to Luxor, this is just the first of "many derivatives" that it plans to launch next year.

The reason that interest and investments in Bitcoin and BTC mining remain a popular choice by both individuals and institutions was perfectly summarized by Paul Tudo Jones during a recent interview with CNBC:

“I’ve still got a very minor allocation. I’ve always had a small allocation to it. [...] In a time when there’s too much money, which is why we have inflation, and too much fiscal spirit spending, something like crypto, specifically Bitcoin and Ethereum, where there’s a finite amount of that, that will have value, at some point, someday.”

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