A handful of improvement metrics show that bitcoin miners’ profit margins are slowly improving, but key sectors of the sector remain under pressure.
Bitcoin’s mining industry has remained relatively stable compared to slow price action and the tumultuous decline of exchange and lending companies
Network hashrate declined slightly in late 2022, mainly due to unprecedented snowfall in the US, and then recovered strongly to surpass a previous peak of over 270 EH/s It was particularly encouraging to see FTX holding hashrate well above its summer low of 2022 even after the collapse.
Bitcoin 7 day average hash rate. Source: Glassnod
But despite recent strength on various metrics, the mining industry faces many challenges, which will likely restrict its growth going forward Hurdles include low costs, the threat of new age efficient machines and the threat of upcoming bitcoin halving that will cut block rewards in half
BTC mining remains a stressful industry
Bitcoin’s network hashrate is improving, but miners are still under a lot of stress due to low profitability. Bitcoin miners’ earnings have shrunk from the peak to a third of their value. Before the price crash in May 2022, miners earned more than $0.22 per TH/s per day, a figure that has now dropped to $0.07.
The percentage share of small-size miners with breakeven prices above $25,000 will drop from 80% in 2019 to 2% by 2022, a positive sign of the end of miner surrender
The sustainability of a mid-sized miner with a breakeven price of $20,000 to $25,000 depends on the capital efficiency of the participants The struggle for them is to stay alive until the bull trend starts, hoping to profit from the next bull cycle.
The sharp decline in the price of medium-sized machines shows that their demand has slowed. According to Coinshare, lowering machine prices will allow capital-rich organizations to buy hardware at cheaper rates to “reduce their capital expenditure costs per TH/s, and increase production without additional ongoing cash costs” but this will be at the expense of existing miners, possibly restricting overall industry growth.
Average price of Bitcoin ASIC mining machines. Source: Hasharet Index
Furthermore, even firms with weak financial capacity cannot take advantage of the recession by increasing lending, especially as central banks globally raise loan interest rates
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Independent research firm, The Bitcoin Mining Block Post came to a similar conclusion about the growth of the industry in 2023. Their analysts predict that miners’ costs will “go sideways and slowly go up” as it was in the 2020s
The pressure from more capable ASICs and the upcoming BTC has been halved
The existing bitcoin mining industry is also facing significant challenges from the arrival of new more efficient machines and a reduction in their half-and-half marginal rewards in 2024
Since June 2021, more energy-efficient miners have arrived, providing more than 100TH/s per joule. By the second quarter of 2022, this trend was accelerated by the introduction of new hardware equipment with more than double the efficiency of existing miners at the time and some of these miners cost less than $15,000.
The miner’s launch date along with its power rating. Source: Hasharet Index
Due to limitations in the size of microprocessor chips, efficiency gains are likely to flatten out for the next year or two. The S19 XP, the most efficient miner made by Bitmain, has a 5nm chip. Going below this size significantly increases the risk of costs and production errors.
However, as more such devices flood the market, it will increase the difficulty of mining for existing players and will slowly drive them away. Thus, only competitive miners that can successfully expand and maintain operations will survive this phase.
On top of that, the miners will also have to prepare for the March 2024 hafting operation. Coinshare’s research showed that, given how halving would directly affect miners, “a potential strategy for mining companies could be to reduce their cash-costs (including overhead, debt, hosting, etc.) rather than focusing on reducing operating costs
Will miners realize profits in 2023?
The above statistics suggest that the worst days of miner surrender may be over. However, there is considerable pressure on the industry, as BTC stockpiling is challenging.
Miner is a strong seller in the market. “Crypto miners are starting to get a little more aggressive in selling,” he quoted a January 19 update from Coinbase Institutional.
The one-hop supply metric of bitcoin miners is calculated from the total holdings of addresses for obtaining tokens from the mining pool. This indicator shows a slight increase in the balance of miners since the beginning of 2023. However, the total amount is still