Bitcoin mining powers network transactions and BTC price. During the 2021 bull run, some mining operations raised funds against their Bitcoin ASIC and BTC reserves.
Miners also pre-ordered ASICs at a hefty premium and some raised funds by conducting IPOs.
As the crypto market turned bearish and liquidity in the sector was seized, miners found themselves in dire straits, and those unable to meet their debt obligations were forced to sell BTC reserves near the bottom of the market or file for bankruptcy.
Despite the strength of the current bear market, few miners have made it increase production throughout 2022 and chain data shows that Bitcoin mining accumulation started to increase in December 2022 and the momentum seems to continue in 2023.
Bitcoin rally to $22,000 improves miners’ margins
The Bitcoin Rally 2023 On January 20, the price of BTC reached a yearly high of $22,153, a 17% 7-day increase, greatly helping BTC mining operations.
The increase in the price of Bitcoin and the hashprice of the network help BTC miners, who maintained net positive balances at the end of 2022, which improves business stability. Moreover, now Bitcoin miners are mostly back in profit.
While more and more miners are turning back to Bitcoin mining rigs, the difficulty is increasing, which may hinder future growth. As conditions improve, will bitcoin miners continue to pile up or continue their selling trend?
In a recap of 2022, Jaran Mellerud, bitcoin mining analyst for Luxor Mining, said:
“Between January and November, public miners unloaded 51,180 bitcoins while producing 47,284 bitcoins.”
BTC hashprice, a metric that measures the market value of mining or computing power, provides insight into the profitability of Bitcoin mining operations.
Since January 1, 2023, the hash price has increased by more than 20% and on January 19. Bitcoin mining profitability increased from $0.06 per Terra Hash per day (TH/d) to 0.07874 TH/d, benefiting BTC price rally. Hashprice has not seen recent levels since early October 2022.
Although the profitability of Bitcoin mining has improved since early 2023, the industry still faces rough waters. According to Nico Smid, co-founder of Digital Mining Solutions:
“The recent increase in hashprice is positive, but many miners are still operating with low margins. A year ago, the hashprice was $0.22/TH/day. While the market has bottomed out, the current economic conditions for mining remain challenging.”
Bitcoin miners still sell most of their mined BTC
Bitcoin miners are benefiting from the rising price, and data shows that many are continuing to sell their rewards.
The most robust mining operations have actually limited debt and expansion or used a strategy of selling BTC with a focus on profit. Anthony Power, a bitcoin mining analyst for Compass Mining, has compiled a list of miners’ inventories at the beginning of the year and at the end of the year based on his own data.
A year that started with so much promise and optimism and ended with several high-profile bankruptcies is more likely to follow.
— Anthony P⭕️wer (@cazenove_uk) December 23, 2022
Marathon Digital, the largest holder of the listed Bitcoin mining companies, held 8,133 BTC at the end of December 2022. The company plans increase production based on hashprice profitability to support their advantage.
The difficulty of mining could hinder profits in the future
With more Bitcoin miners turning their BTC rigs back on, the mining difficulty metric adjusted upward by 10.26% on January 16. Bitcoin difficulty indicates the time and cost of mining BTC to get rewards. The adjustment was the largest since October 2022, and the increase in difficulty makes it more expensive for Bitcoin miners to earn proof-of-work rewards (PoW) consensus mechanism.
With the upcoming bitcoin halving event scheduled to take place in 2024, mining BTC will become even more difficult and possibly more expensive for miners, putting more pressure on already thin margins. On the other hand, the last half in 2019 was followed by a 300% profit for BTC the year before.
While miners are currently enjoying some relief after a tough year, they face a potentially rough road ahead. Business operations are seemingly improving with Bitcoin miners selling for profit rather than borrowing against Bitcoin holdings.
The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.