Bitcoin Price Below $20,000 Puts BTC Mining Profits Under Pressure as Hash Rate Rise

Bitcoin Price Below $20,000 Puts BTC Mining Profits Under Pressure as Hash Rate Rise

October saw a surge in the bitcoin hash rate, pushing the meter to a new high of 245 exhashes per second. These changes led to a sharp drop in the hashrate, resulting in lower profit margins for bitcoin (BTC) miners and reached $66.8 per pethash on October 24.

According to Luxor Technologies, the “hash price” is the revenue that bitcoin miners earn per unit Hash ratewhich is the total computational power miners deploy to process transactions on the Proof of Work network.

Bitcoin price index. Source: Luxor Technologies

Not only was the size inconsistent, it was Bitcoin hash rate increased Last week it averaged 269 EH/s. This means that the network difficulty has been increasing since July 2022.

Bitcoin market price vs bitcoin difficulty. Source: Blockchain.com

Expansion of mining operations, which creates the competitiveness of the mining sector; The increasing use of ASIC miners, which are more efficient than their alternatives; The Ethereum merger has resulted in some Ethereum miners filling the empty shelf space of non-working Ether (ETH) GPU miners with ASIC miners for BTC.

Thus, the rise in the hash rate modified the difficulty of bitcoin at a time when the price of bitcoin was declining. As expected, after a higher hash rate and a hard increase, the hashrate fell to $0.0657 per soil per day, resulting in a lower profit level.

Bitcoin price vs hash rate. source: glass

Increased mining costs translate into compressed profits

One of the contributing factors to the low level of profit is the general rise in the costs of bitcoin mining. For example, there has been a sharp increase in electricity prices in the United States. From July 2021 until July 2022 alone the price of electricity a plus at 25%, from $75.20 to $94.30 per MWh. Energy prices also tend to be higher in the winter, when people need to heat their homes. The Bitcoin mining industry is already seeing a mining boom in Kazakhstan because of reasonable energy.

Bitcoin miners face Other high costs, such as hosting fees, acquiring miners and installing or upgrading cooling systems. During the 2020-2021 crypto bull market, bitcoin miners took out loans when the price of bitcoin and equipment was much higher, meaning that interest on the same existing debt could Damage to newer and highly indebted mining companies.

It is clear that the increase in the hash rate and difficulty of Bitcoin, as well as the decrease in the hash price, is leading to compressed profit margins. The following chart shows a decline in profits in a landscape where hash rate, difficulty, and electricity cost continue to rise.

Mining expansion plans for major BTC public miners. Source: Luxor

If the hash rate continues to rise amid the low retail price, the profit margin will continue to decline, which could lead to some Mining companies to close shop permanently.

One possible outcome is that lean miners (cooler budgets) like Marathon may be able to purchase refinery equipment and storage space from bloated miners that fail.

Mining companies that remain weak as they try to expand may be victorious. Mining companies such as Core Scientific, Marathon, Riot, Bitfarm and CleanSpark are preparing to expand even as many miners find it difficult to profit.

Related: Public Bitcoin miner hash rate is booming – but is it really bearish relative to the price of Bitcoin?

Is sustainability the answer?

In light of the difficulties discussed, BTC miners should Adopting sustainable BTC mining models Both for potential profitability and facilitation of regulators. This should include the use of renewable energy sources, increased production capacity and the installation of advanced cooling systems.

Mining companies can boost their operations with renewable energy from wind, solar and hydropower, which at the same time reduces costs and carbon emissions. This approach could lead to more consistency and sustainability in the bitcoin mining energy costs. Norway managed to capture it 1% of all bitcoin mining is through 100% renewable energy. Approaching.

Low bitcoin price, high bitcoin hash rate and difficulty, as well as low hash price contribute to small profit margins, which could lead to sustainable decentralized mining practices across the industry.