The landscape of Bitcoin mining is increasingly challenging, with a notable decline in the industry’s central profitability metric, hash price, signaling potential risks for smaller players and the overall ecosystem.
Hash Price at Critical Juncture
Recent analyses indicate that the hash price, which represents the daily expected earnings per unit of mining power, has dropped to approximately $42 per PH/s, down significantly from over $62 per PH/s just a few months ago.
This downward trend towards the $40 threshold is prompting smaller and less efficient miners to consider shutting down operations. Reports highlight that such low revenue levels make it difficult for operators with slim margins to manage basic expenses like electricity and equipment upkeep.
Manufacturers and hosting service providers are similarly impacted. The decrease in orders for mining equipment reflects the slowdown of income opportunities, particularly linked to Bitcoin, which has lost value amid market fluctuations.
In response, some equipment manufacturers have initiated mining operations using their machines as a strategic move to counteract declining customer demand. Firms like Bitdeer are reportedly expanding their self-mining efforts as a way to stabilize their revenue streams.
Shift Towards AI Computing
With high initial investment costs and a continuous rise in hashrate, managing ASIC mining farms has become increasingly complex, particularly following the April 2024 halving which reduced block rewards to 3.125 BTC.
Reflecting back to 2009, when miners relied on CPUs to yield 50 BTC rewards, the industry has evolved rapidly, making specialized hardware a necessity. This evolution has led several companies to pivot their resources toward general computing capacities suitable for AI applications.
Significant agreements underscore this trend. For instance, Cipher Mining secured a substantial $5.5 billion, 15-year contract to provide computational power for Amazon Web Services in October.
Meanwhile, IREN struck a $9.7 billion deal for GPU services with Microsoft. These strategic partnerships aim to ensure reliable income as Bitcoin mining returns are diminishing.
Market Volatility Adds Pressure on Miners
The ongoing weakness in Bitcoin’s market price exacerbates these challenges. The cryptocurrency recently plummeted to below $100,000, with its value dropping nearly 20% from a high exceeding $126,000 on October 6.
Analysts suggest heavy sell-offs by long-term holders are influencing the market dynamics, with net sales from this demographic surpassing 1 million BTC since late June, as reported by Compass Point analyst Ed Engel.
A substantial liquidation of leveraged positions on October 10 further unsettled the market, resulting in price dips below crucial support levels at $117,000 and $112,000.
Markus Thielen, the founder and CEO of 10X Research, noted that the inability to reclaim essential price points suggests bearish market sentiments. His team has revised projections, indicating a potential decline to $100,000 and suggesting that a purchase-worthy bottom could emerge within weeks.
Image sourced from Pexels, chart courtesy of TradingView
