Key Highlights:
- Bitcoin Miners Are Distressed- Getting pummeled by the bearish conditions plaguing the market;
- Energy costs and mining difficulty are major catalysts for miners’ struggle;
- Bitcoin’s hash rate and hash price are at record lows,
- Bitcoin mining-related companies are under threat.
The fallout being recorded in Bitcoin (BTC) is putting a lot of pressure on the pockets of many investors. However, one group that is having it worse is the Bitcoin miners.
According to a recent report from Cointelegraph, Bitcoin mining revenue has fallen to a level not seen since November 2020. This fall is catalyzed by two factors, including the obvious abysmal performance of the benchmark cryptocurrency and an increased cost of operation due to heavier demand for computational power and surging electricity costs.
However, amidst all this, one of the few saving graces for miners is the declining Bitcoin hash rate in the past few months. More on this in a moment.
The report showed that Bitcoin mining revenue, measured by block rewards and transaction fees, fell to $11.67 million in late November. The last time miners recorded this amount of monthly revenue was on November 2, 2020, when BTC traded for around $13,500.
Source: Blockchain.com | Miners’ Revenue
With a current market price of about $17,000 and the same block reward from two years ago, one would expect the mining revenue to be higher. However, as highlighted earlier, factors such as increasing mining difficulty (about 37 trillion at the time of writing) and energy prices have shaved away from miners’ expected revenue.
Source: Statista | Mining Difficulty
Miners Bemoan the Rising Cost of Energy
Recent data from macromicro.me shows that the cost of producing one Bitcoin currently hovers around $19,356. This is significantly higher than the current price of BTC ($17,000), indicating that miners need to secure the cheapest energy source they can find while operating in the most efficient manner possible to make a profit.
However, with metrics showing that the world’s average price for electricity in 2022 currently sits at $0.143 per kWh and mining difficulty at record highs, the problems being faced by miners become clear.
Bitcoin Miners Are Distressed : The Declining Bitcoin Hash Rate
Over the past three months, the Bitcoin hash rate has recorded a steep decline, dropping by 20% from its 316.7 EH/s all-time high recorded in October to 253.4 as of December 1. Analysts worry that this could cause some miners to dump their rigs.
Source: YCharts | Bitcoin Hash Rate
That said, a recent report from Hashrateindex warned that a supply shock from miners and lenders dumping machines could exert intense bearish pressure on the ASIC market. As one can imagine, lower demand for new mining machines will hurt the prices of both new and used machines, causing mining rig manufacturers serious losses.
Source: Twitter
Meanwhile, the current hash price (or profitability) for Bitcoin miners is at a record low of $0.058, after falling by a whopping 84% year-on-year (YoY) as of late November. The hash price metric is measured in dollars per day per terahash per second ($/d/TH/s).
At such abysmal levels, the average daily revenue generated from an Antminer S19j Pro (at 104 TH/s) is a paltry $6. Considering how expensive energy is in some areas at the moment and that the mentioned miner retails for about $2,000 to $2,500, many miners could as well be running at a loss.
Due to the declining profitability, the payback period for ASIC miners has increased significantly. As of late November, the payback period sat at an average of 27 months, more than a two-fold increase from the 12-month average from November 2021.
Source: Hashrateindex
To make matters worse, the 2024 Bitcoin halving is just around the corner and is believed to have devastating effects on mining profitability for an obvious reason; a 50% slash in mining rewards.
With these unfavorable factors exerting pressure on Bitcoin miners, analysts predict that hardware prices could lose value in the coming year or two.
Canaan Creatives Fights to Stay Afloat Amid the Bearish Onslaught
Still on the topic of ASIC miners’ profitability, popular Chinese ASIC manufacturer Canaan Creative recently announced a 75% drop in gross profits for Q3 2022, as many miners continue to run at a loss. In its report, the company revealed that it made $32.9 million in profit in Q3 this year, compared to the $131.6 million recorded in Q2.
Speaking on the unfortunate predicament, James Jin Cheng, the Chief Financial Officer at Canaan, said:
“We experienced unprecedented pressure due to the weakened market demand in the third quarter, resulting in a decline in our topline performance.”
That said, the company still expects the Bitcoin market condition to deteriorate further in the coming quarters. For that reason, Canaan has said it will focus on shedding expenses to sustain cash flow for its manufacturing operations.
Miners Struggle With Falling Revenues
Another Bitcoin mining-related company suffering from the current hostile operational conditions is Core Scientific.
Following the Bitcoin 2020 halving, miners receive 6.25 BTC for solving one block of Bitcoin. That said, miners’ profitability is largely dependent on the price of Bitcoin and access to cheap electricity to power ASIC computers.
Typically, miners form or join mining pools to increase their chances of solving blocks and realizing profits. However, analysts believe that even this strategy will soon give to worsening operating conditions.
Source: Twitter
Core Scientific recently submitted a filing with the US Securities and Exchange Commission (SEC), informing the regulatory watchdog that it would not be able to meet its debt obligations in October and November 2022. The prominent mining company cited the falling price of Bitcoin and rising energy costs as reasons for its default.
Many have speculated that Core Scientific might be heading for bankruptcy in the coming months, should the existing conditions prevail.
Final Word
Tracking the events over the past months, Bitcoin miners are distressed can be said to be witnessing the brunt of the crypto winter. Already, several mining companies, outside the ones mentioned in this piece, are in a bind. Like Core Scientific, Argo Blockchain is battling liquidity issues and sold off a massive chunk of its BTC holdings in October to stay afloat.
One can only hope that the situation in the crypto market gets better soon. If not, the consequences could be far-reaching and could worsen the already difficult situation in the market.
