The mining difficulty of Bitcoin reached a new record this week at 127.6 trillion but is projected to decline slightly in the next adjustment on August 9. Estimates suggest a decrease of around 3%, bringing the difficulty down to 123.7 trillion, with the average block time currently at about 10 minutes and 20 seconds, according to CoinWarz.

Data from CryptoQuant indicates that mining difficulty dropped in June, notably at the end of the month and during the first half of July, hitting 116.9 trillion. However, the second half of July saw the difficulty trend upward again, continuing its longer-term rise.

Mining difficulty and the network’s hashrate—the total computing power used to secure Bitcoin—are key factors in determining miner profitability and maintaining Bitcoin’s high stock-to-flow ratio. This ratio helps protect the price of Bitcoin from being affected by sudden increases in supply.

The stock-to-flow ratio compares the total circulating supply of an asset with the amount being newly produced. A higher ratio suggests stronger price stability, while a lower ratio indicates greater vulnerability to supply changes. For instance, silver has a lower stock-to-flow ratio than gold, meaning price increases often trigger more production, which in turn can lower prices by flooding the market.

Bitcoin’s stock-to-flow ratio exceeds that of gold, with approximately 94% of its 21 million total supply already in circulation. Gold has no fixed cap and an annual inflation rate of around 2%. As PlanB, creator of the Bitcoin stock-to-flow model, puts it: “Gold scarcity, the stock-to-flow ratio, is about 60. Bitcoin’s scarcity is about 120. So, bitcoin is 2x scarcer than gold.”

Bitcoin’s difficulty adjustment mechanism is designed to ensure that the rate of new coin production remains proportional to the computing power miners contribute. This mechanism prevents sudden surges in supply and potential price crashes by adjusting difficulty to match fluctuations in mining activity.

As more computational power joins the network, difficulty increases to maintain the 10-minute block production target. If computing power declines, the difficulty adjusts downward to keep the block interval steady.

Sources:

https://cryptoquant.com/asset/btc/chart/network-stats/difficulty?window=DAY&sma=0&ema=0&priceScale=log&metricScale=linear&chartStyle=line

https://cryptoquant.com/asset/btc/chart/network-stats/hashrate?window=DAY&priceScale=log&metricScale=linear&chartStyle=line&sma=0&ema=0

https://cointelegraph.com/news/bitcoin-mining-difficulty-all-time-high-projected-drop-august

https://x.com/100trillionUSD/status/1947257919788965974/photo/1

https://www.coinwarz.com/mining/bitcoin/difficulty-chart