Home CryptocurrencyAltcoin The worst days of bitcoin miners may be over, but a few key hurdles remain

The worst days of bitcoin miners may be over, but a few key hurdles remain

by SuperiorInvest

The Bitcoin mining industry has been relatively stable compared to bearish price actions and tumultuous impacts exchange offices and credit companies.

The network’s hashrate fell slightly towards the end of 2022, mainly due to an unprecedented blizzard in the US, and has since recovered strongly to surpass its previous peak of over 270 EH/s. It was particularly encouraging to see the hashrate holding well above the summer 2022 lows, despite the aftermath of the FTX collapse.

Bitcoin 7-day average hash rate. Source: Glassnode

However, despite recent robustness in various metrics, the mining industry faces many challenges that are likely to limit its growth going forward. Obstacles include low profitability, the threat of powerful new-age machines and the upcoming situation Halve Bitcoin which will cut block rewards in half.

BTC mining remains a stressed industry

While the hashrate of the Bitcoin network has improved, miners are still under a lot of stress due to low profitability. Bitcoin miners’ earnings have dropped to one-third of their value from their peak. Before the May 2022 price collapse, miners were earning more than $0.22 a day per TH/s, a figure that has now dropped to $0.07.

The percentage of small miners with breakeven prices above $25,000 has he dropped from 80% in 2019 to 2% by 2022, a positive sign of the end of miners’ capitulation.

The sustainability of medium-sized miners with breakeven prices between $20,000 and $25,000 depends on the capital efficiency of participants. The fight for them is to survive until the bull trend starts, hoping to benefit from the next bull cycle.

A sharp drop in prices for mid-sized machines suggests that demand for them has slowed. According to CoinSharesThe reduction in machine prices will allow capital-rich entities to “reduce their capital costs by TH/s and increase performance without incurring additional ongoing cash costs” by purchasing low-cost hardware. However, this will come at the expense of existing miners, which is likely to limit the growth of the industry as a whole.

Average price of Bitcoin ASIC miners. Source: Hashrate Index

In addition, companies with weak financial health will not be able to take advantage of the slowdown by increasing debt, especially as central banks around the world raise interest rates on loans.

Independent research firm The Bitcoin Mining Block Post has come to a similar conclusion about the growth of the industry in 2023. Their analysts predict that miner costs will “move sideways and gradually rise” as they did in 2020.

Pressure from more capable ASICs and the impending halving of BTC

The existing Bitcoin mining industry also faces significant challenges with the arrival of new and efficient machines and reduced rewards after the 2024 halving.

From June 2021, more energy efficient miners are coming, offering more than 100 TH/s per joule. This trend accelerated in Q2 2022 with the introduction of new hardware equipment that at the time had more than double the efficiency of existing miners. Breakeven prices for some of these miners are under $15,000.

Miner launch dates with their rated outputs. Source: Hashrate Index

Efficiency gains are likely to diminish over the next few years due to microprocessor chip size limitations. The most efficient miner produced by the company Bitmain, S19 XP, has a 5 nm chip. Exceeding this size significantly increases costs and the risk of manufacturing errors.

Still, as more and more of these types of equipment flood the market, the difficulty of mining for existing players will increase and slowly push them out. Therefore, only competitive miners who can successfully expand and maintain operations will survive this phase.

Additionally, miners will have to prepare for the March 2024 halving event. CoinShares research pointed out that given how the halving will directly affect miners, “a potential strategy for mining companies may be to focus on reducing operating costs above their cash costs (including overhead, debt, hosting, etc.).

Will miners realize profits in 2023?

The above figures suggest that the worst days of miners surrendering could be over. However, the industry remains under considerable pressure, making BTC accumulation difficult.

Miners continue to be the leading sellers in the market. Update from Coinbase Institutional on January 19 cited that “cryptominers have become a bit more aggressive in selling”.

The Bitcoin Miner One-Hop Supply metric is calculated from the total number of addresses held that have received tokens from mining pools. The indicator has seen a slight increase in miners’ balances since the start of 2023. However, the total is still below the lows of 2019, pointing to the challenges of a quick recovery in conditions if the price does not favor miners.

Supply of bitcoin single hop miners. Source Coinmetrics

The fact that miners continue to sell with little hope of a near-term recovery could dash the hopes of those expecting a parabolic run in 2023. However, the good news is that the worst days of capitulation may be behind us. While miners are slow and steady, they can continue to grow, start piling up again and help stage the next bullish rally.

This article does not contain investment advice or recommendations. Every investment and trading step involves risk and readers should do their own research when making decisions.

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