Bitcoin Mining's Financial Strain: A Flow Analysis of the 11% Difficulty Drop

The mining network just experienced its most severe single difficulty drop in nearly three years. At block height 935,424, Bitcoin's mining difficulty fell 11.16% to 125.86 trillion, the largest negative adjustment since China's 2021 ban. This sharp retarget was a direct response to a collapsing hashrate, which has dropped about 20% over the past month and fell about 12% since November 11. The primary drivers were a 45% price collapse from its October high and Winter Storm Fern, which forced U.S. miners to shut down operations.

This difficulty drop is a symptom of acute financial stress, not a cure. The key metric for mining revenue, hashprice hit an all-time low of $33.31 per petahash per day on February 2. At that level, only the newest mining hardware is profitable, while older models are running at a deficit. The drop in hashrate triggered a collapse in daily mining revenue, which plunged from roughly $45 million to a yearly low of $28 million in just two days. The average cost to mine a bitcoin now sits around $87,000, well above the current spot price near $69,000.

The bottom line is that the network is under severe strain. CryptoQuant's Miner Profit and Loss Sustainability Index has slid to 21, its lowest level since November 2024, signaling that many miners are operating at a loss. The difficulty adjustment provides some margin relief, but it is reacting to a crisis where revenues are failing to cover costs for a growing share of the network. The scale of the hashrate decline and the depth of the hashprice crash confirm that this is a period of extreme financial pressure for miners.

The Mechanics: How the Drop Works and Miner Survival

The difficulty reset mechanically improves miner odds. A lower target means each unit of hashrate has a better chance of solving a block and earning the block reward. This is the intended relief valve for a network under strain. Yet this mechanical benefit is completely overwhelmed by the collapse in the revenue per unit of hashrate.

The disconnect is stark. Even with the 11% difficulty drop, daily mining revenue has plunged to a yearly low of $28 million. That figure represents a halving of large miner output, which fell from 77 bitcoin per day to 28. The core problem is that the drop in hashrate and the crash in hashprice have destroyed the revenue stream faster than the difficulty adjustment can compensate. The network's total hashrate has fallen about 12% since November 11, marking the largest drawdown since 2021.

This sets up a critical stress test. The CryptoQuant Miner Profit and Loss Sustainability Index has slid to 21, its lowest level since November 2024. This index is a direct measure of financial strain, signaling that a growing share of miners are operating at a loss. The difficulty drop provides temporary margin relief, but it does not change the fundamental equation where the average cost to mine a bitcoin now sits around $87,000, well above the current spot price. The network is surviving on the fumes of its own hashrate.

The Outlook: Next Adjustment and Sustainability Risks

The immediate relief from the 11% difficulty drop is now in place, but the next adjustment offers only modest respite. The network is projected to see a 5.63% increase in difficulty on February 20. That rise is a direct function of the hashrate that has been restored since the storm, but it is a far cry from the relief provided by the recent cut. This small uptick suggests the hashrate recovery is fragile and that the network is still operating under significant stress.

The key risk is whether hashrate remains suppressed. If the total network power does not fully recover, the next adjustment could see another downward move. While that would provide more margin relief, it would also signal that the operational stress from the storm and the price collapse is prolonged. The hashrate has already fallen to a four-month low, and the recovery is incomplete, leaving the network vulnerable to further volatility.

This sets up a period of sustained financial pressure. The CryptoQuant Miner Profit and Loss Sustainability Index has slid to 21, its lowest level since November 2024. That reading confirms that a growing share of miners are operating at a loss, a condition that cannot be solved by a single difficulty adjustment. The network may be entering a phase where financial strain is the new baseline, with difficulty resets serving as reactive band-aids rather than a path to sustainable profitability.