SimonaD2023-07-06

Use of derivatives by Bitcoin miners in correlation to network difficulty

The difficulty is a measure of how difficult it is to mine a Bitcoin block. A high difficulty means that it will take more computing power to mine the same number of blocks, making the network more secure against attacks. Therefore, when there is a spike in the number of miners in the network, Bitcoin algorithm will increase the difficulty so that the blocks cannot be mined too quickly. With the increase in difficulty, we can notice that the activity of miners on derivatives exchanges was constant and even intensified in the last weeks when difficulty reached its ATH. As Bitcoin miners have costs, the Bitcoin income received may currently be valued at more than their costs, but what happens if the price of Bitcoin decreases significantly? The amount received may no longer be enough to cover costs. So that the miners have to do something to protect against this scenario, and this is where derivatives prove themselves extremely useful. The last important miners to exchanges flows took place when price was about 25k usd (support) and continued till price reached area of 31k usd (resistance). We can conclude that miners took long positions this time, benefiting from the upward price movement by utilising derivatives.