Bitcoin mining profitability is under threat as hash rate hits new all-time high

Bitcoin mining profitability is under threat as hash rate hits new all-time high

Bitcoin’s hash rate reached a new all-time high above 245 EH/s on October 3rd, but at the same time, BTC profitability is approaching all-time lows.

With prices in the low $20,000 range and estimated network-wide cost of production at $12,140, ​​Glassnode analysis and suggest “The miners are somewhat on the cusp of acute income distress.”

Bitcoin network hash rate. Source: Hashrate . Index

In general, difficulty, which is a measure of how “difficult” mining a block is, is a component of determining the production cost of bitcoin mining. The higher difficulty means that additional computing power is required to mine a new block.

Using a difficulty regression model, the data shows an R2 coefficient of 0.944 and the last time miners’ distress signs flashed while BTC was flowing to $17,840. Currently, it is hovering near $18,300, which is not far from the price range seen in the past two weeks.

Bitcoin: a difficulty regression model. Source: glassnode

The hash rate hitting a new all-time high effectively means miners’ margins will shrink further and unprofitable outfits can either mine at a loss, assuming that the future price of BTC will eventually compensate for the cost difference, or they can part and wait until the difficulty drops. Or improve energy costs.

With the recent rise in the hash rate, difficulty is also likely to rise next week, with estimates pointing to a 6%-10% adjustment.

Bitcoin network hash rate (left) and expected difficulty adjustment (right). Source: BTC.com

Shown below are estimates of miner profitability assuming an electricity rate of $0.08 kWh.

Bitcoin ASIC Profitability. Source: DxPool

Depending on miners’ capital and operational costs, the above profit stats clearly show the tightrope some miners are trying to balance right now.

Despite the pressure on profitability, independent market analyst Zach Foyle suggested that miners on good balance sheets are constantly looking for ways to expand their operations and that the recent surge in hash rate may be linked to Bitmain’s latest S19 XP operating system coming online.

Is bitcoin clear?

What investors really want to know is whether or not the bitcoin price is clear or whether there is an elevated risk of another sell-off driven by miner capitulation.

According to Colin Harper, Head of Research at Luxor Technologies:

“Miners are still selling in the current environment (eg Riot sold 300 BTC last month and Bitfarms sold 544 BTC). In my estimation, we are more likely to pull back from the general sale than the miner in particular. If the BTC price reaches $10,000, as well as more miners surrendering via bitcoin sales, there will also be a lot of rigs flooding the market. We’re not trying to single out Riot or Bitfarms, these are just our current updates, along with Hut 8, which haven’t sold any bitcoin.” .

On the other hand, Joe Burnett, Senior Analyst at Blockware Solutions said, He said It is likely that the bulk of the miners’ sell-off has passed, reducing the likelihood of another capitulation level sell-off.

Burnett told Cointelegraph:

“I think the small Bitcoin capitulation to miners that I have seen this summer has put some weak and highly leveraged players out. I don’t think we will see another major hash rate drop without Bitcoin making new lows below $17,600. This is not to say that weak miners are weak. People aren’t going to back off this year and next, but new public plug-in rigs will likely be enough to keep the hash rate high.”

When asked about the increase in hash rate putting pressure on higher difficulty adjustments and the detrimental effect on miner profitability, Burnett said:

“Sure. Individual weak players might pull out and be fired, but it wouldn’t be a significant and sudden ‘miner capitulation’ without a drop in the price of bitcoin. Margins are definitely tight.”

According to Glassnode, their model of “implied income stress of the Puell multiplier, noting explicit stress of difficulty bar pressure” has recently come out of the region where “miner capitulation is statistically likely,” indicating that another miner-driven selloff is unlikely. at present.

Bitcoin miner capitulation risk. Source: glassnode

However, analysts were keen to stress that the total volume of bitcoin held by miners is close to 78,400, and any sharp downward movement in the price of bitcoin could lead to selling from troubled mining outlets.