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Miners’ conditions are more difficult than ever; Bitcoin mining below 20,000 dollars is not profitable

شرایط ماینرها سخت‌تر از همیشه؛ استخراج بیت کوین زیر ۲۰هزار دلار صرفه ندارد

In October, Bitcoin miners witnessed an increase in the hash rate and this measure reached a new level of 245 exahash per second. This incident led to a sharp drop in the price of hash and, as a result, a decrease in mining profit. In addition, on October 24 (November 2), the price of Bitcoin reached its lowest level of $66.8 per petah.

To Report Cointelegraph, as defined by Luxor Technologies, hash price is the revenue that Bitcoin miners earn per unit of hash rate, which is the total computing power employed by miners processing transactions on the proof-of-work network.

Bitcoin hash rate index chart
Bitcoin hash rate index chart

The trend of the Bitcoin hash rate is opposite to the Bitcoin price and even in the last week it has increased to an average of 269 exahes per second. This means that the difficulty of the network is increasing from July this year.

Bitcoin price vs network difficulty chart
Bitcoin price vs network difficulty chart

The expansion of mining operations, which creates competition among miners; The increasing use of ASIC miners, which are more efficient than alternative models, and the popularity of Ethereum have led some mining companies to fill the empty racks of inactive Ethereum GPU miners with Bitcoin ASIC miners.

As a result, at a time when the price of Bitcoin was falling, the increase in the hash rate led to an adjustment in the difficulty of the network. As expected, after increasing the hash rate and network difficulty, the price fell to $0.0658 per hash per day, reducing miners’ profits.

Miners' conditions are more difficult than ever;  Bitcoin mining below 20,000 dollars is not profitable
Bitcoin price vs hash rate chart

An increase in mining costs means a decrease in profits

One of the effective factors in reducing the profit level is the general increase in Bitcoin mining costs. For example, electricity prices in the United States rose sharply. Only from July 2021 to July 2022 (July 1400 to 1401), the price of electricity increased by 25%, from $75.2 to $94.3 per megawatt hour. Winter energy prices will also increase as people need to heat their homes. Currently, the Bitcoin mining industry is seeing an increase in the amount of mining in Kazakhstan due to the affordable price of energy.

Bitcoin miners face other increasing expenses such as hosting costs, buying miners and installing or upgrading cooling systems. During the 2021-2022 bull market, mining companies took out loans when the price of Bitcoin and equipment was very high. This means that the interest on their current debt could put too much pressure on newer, heavily indebted Bitcoin mining companies.

It is clear that the increase in the hash rate and network difficulty, along with the decrease in the hash price, leads to a decrease in the mining profit margin. The chart below shows the decline in profits in a landscape where hash rate, network difficulty, and power costs continue to rise.

Miners' conditions are more difficult than ever;  Bitcoin mining below 20,000 dollars is not profitable
Mining development plans for big bitcoin miners

If the hash rate continues to increase while the hash price is decreasing, the mining profit margin will continue to decrease. As a result, it will likely cause some mining companies to shut down permanently.

One possible outcome is that more efficient mining companies with leaner balance sheets, such as Marathon, may be able to buy decommissioned equipment and rack space from underperforming mining companies that have been broken up.

Mining companies that can remain viable while trying to expand are likely to win the game. Companies like Scientific Core, Marathon, Riot, Bitfarm, and CleanSpark are preparing to expand as many miners struggle to make a profit.

Moving towards sustainable models

Considering the problems we talked about, Bitcoin mining companies should move towards sustainable mining models to increase profitability and reduce regulatory pressure. These models should include the use of renewable energy sources, increasing production capacity and installing advanced cooling systems.

Mining companies can optimize their activities by using renewable energies such as wind energy, solar energy and hydroelectric power and simultaneously reduce their costs and carbon emissions. This approach can lead to more stability and sustainability in Bitcoin mining energy costs. Norway has been able to obtain 1% of the total energy required for Bitcoin mining through the use of 100% renewable energy.

Miners’ declining profitability as a result of Bitcoin’s falling price, hash rate, and high network difficulty coupled with a low hash price may lead to a move toward sustainable, decentralized mining practices across the industry.

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