Bitcoin’s mining difficulty has adjusted upward repeatedly through 2026, reflecting a network hash rate that has continued expanding even after the April 2024 halving cut the block subsidy from 6.25 BTC to 3.125 BTC. That combination - more competition for smaller rewards - has made the current mining cycle one of the more economically pressured in Bitcoin’s history.

The halving’s immediate aftermath was predictable: revenue per petahash dropped sharply, and publicly traded miners saw margin compression that showed up plainly in their quarterly filings. What’s less predictable is how long the industry can sustain elevated hash rate before difficulty-driven attrition forces a meaningful shakeout. So far, that shakeout has been slower than many analysts expected.

Efficiency Is Now the Only Moat

The miners still operating profitably at current difficulty levels share one characteristic: they’ve either locked in cheap power contracts - often in regions with stranded hydro or flared gas - or they’ve deployed the most recent generation of ASICs, where machines like Bitmain’s S21 series and MicroBT’s M60 line consume significantly less power per terahash than equipment from three or four years ago. Older hardware, by contrast, has been pushed below breakeven in most markets where electricity costs exceed roughly $0.06–0.07 per kilowatt-hour.

Large operations in places like Ethiopia, Paraguay, and parts of the U.S. Gulf Coast have held on partly because their power costs sit well below those thresholds. Smaller miners without those advantages have been quietly shutting down or selling machines into secondary markets.

Transaction Fees Aren’t Filling the Gap

The original assumption embedded in Bitcoin’s design - that transaction fees would gradually replace the subsidy as the primary miner incentive - hasn’t materialized at the scale the economics require right now. Fee revenue spiked during periods of Ordinals and BRC-20 activity in 2023, but those periods were temporary. Most blocks in 2026 continue to generate fees that represent a small fraction of the total block reward. That’s not necessarily fatal to the security model in the short term, but it does make the network’s long-run fee market one of the more genuinely unresolved questions in Bitcoin.

Whether rising Bitcoin prices compensate for lower subsidy indefinitely is something the market keeps deferring rather than answering.