Bitcoin miners are taking their foot off the pedal and scaling down production as cryptocurrency prices hit fresh lows and the skyrocketing price of energy continues to eat into profits.
The Bitcoin hash rate—a measure of how much power is being used to create new coins—has fallen 5.4% since Jun. 12, the day the price of Bitcoin fell below $25,000, according to Blockchain.com. Meanwhile, the price of graphics processors, which provide the computing power necessary to create new units of bitcoin, fell by an average of 15% in May, computing magazine Tom’s Hardware reports, indicating miners are offloading their chips on the secondary market.
The decline in hash rate and the increased availability of GPUs indicate that some miners may be throwing in the towel in the bitcoin minting business—finding the enormous energy costs for the comparatively small reward just not worth it anymore.
“Supply and demand regarding bitcoin mining has not been favoring the price this year,” Yuya Hasegawa, crypto market analyst at bitbank, said in a note on Friday.
The competitiveness of mining Bitcoin has gone up considerably, with the Bitcoin hash rate hitting an all-time high on Jun. 12. With more people mining Bitcoin, it is more difficult to produce a coin—and requires more energy. But just as difficulty hits its peak, the price of the coin has plummeted. Hasegawa notes that to get out of this situation, the difficulty has to go down or the price has to go up dramatically.
He warns, “If the current situation continues, miners will likely sell their Bitcoins when the price rebounds, which will slow down the pace of price recovery and could put Bitcoin in a range-bound move for a while.”
A new hash-crash?
Total revenues paid to miners have fallen to their lowest level in nearly a year, according to Blockchain.com, and the share prices of listed miners Marathon Digital and Hut 8 Mining have both fallen 41% over the past month.
“Currently, it’s not fun to be in the mining business,” Alexander Neumueller, digital assets project lead at the Cambridge Centre for Alternative Finance, told the Financial Times.
The fall in revenues is clearly due to the sharply dropping price of Bitcoin. While Bitcoin is back above $21,000 after a Thursday night rally, the valuation of the coin has been inching toward $20,000 since the start of the week. The value of the coin is over 70% down from its all-time high in November 2021, and its total market value has fallen from a high of $3.2 trillion to just under $1 trillion today.
But while Bitcoin prices have fallen to record lows, the price of energy is peaking, and for miners, this means they are now facing the pain from two directions: high costs and lower revenue per Bitcoin generated.
Didar Bekbaouov, a Kazakh miner and cofounder of mining company Xive, said he was “adjusting to new prices and reality,” telling the FT that he switched off his mining operations once Bitcoin fell below $25,000.
Meanwhile, Hut 8, which reported in its 2021 annual information that “the only seasonality that the Company experiences is related to potential changes in electricity prices based on volatility in market natural gas prices,” told the FT that it has been preparing for this day and has built up a storage of “unencumbered bitcoins” to deploy for acquisitions for this day.
“Companies that have been thoughtfully planning for the downturn for some time are likely to weather this period, but many have acted with impulse at the height of the market, and may be stretched and underfunded in the coming months,” Jaime Leverton, chief executive of Hut 8, told the FT.
Mining Bitcoin during an energy crisis
More difficulties may be coming for miners.
As countries like Germany ask residents to conserve energy with gas prices spiking because of Russia’s war in Ukraine, the cost of mining an alternative currency like Bitcoin—an estimated 15GW of electricity each day, according to research from the Cambridge Centre for Alternative Finance—has some questioning whether it is really necessary.
The Swedish central bank Riksbank released a report on Jun. 10 calling for a ban on Bitcoin, noting that “recently, some extraction of crypto assets has been established in northern Sweden, where it consumes as much electricity as 200,000 households do on an annual basis,” the report says.