Key Points:
Bitcoin’s hash rate dropped to 575 EH/s, a two-month low, on May 10 due to miners shutting down unprofitable rigs post-halving.
On May 9, Bitcoin mining difficulty decreased by 6% to 83.15 T, a significant drop not seen since 2022 during Terra and FTX’s bankruptcies.
Bitcoin’s hash price hit a new low of $44.5/PH/s on May 2, down 75% from the post-halving peak of $180/PH/s.
Nine mining companies, including Marathon Digital Holdings, Riot Platforms, and TeraWulf Inc., had total hash costs above $55/PH/s in Q1 2024, exceeding the current hash price of $54/PH/s.
Forecast:
The current hash price is nearing mining companies’ fleet hash cost, leading to slow growth or a decline in the hash rate in the upcoming months. Miners in Texas may need to scale down operations during the impending summer heat waves. However, the orders for next-gen rigs like the S21 and M50 series, worth millions, placed in 2023 are expected to boost the hash rate eventually.
Sentiment:
While some companies like Riot and Marathon are thriving, others are struggling with profitability, highlighting the need to upgrade equipment, reduce energy costs, and explore favorable regulatory environments.
Analysis:
Despite a drop in hash rate, miners’ margins remain tight post-halving, with margins declining by over 50% between pre-halving levels and April 25.
Narrow margins worsened as Bitcoin transaction fees dropped after Runes-induced fee spikes, which contributed $117 million in fees between April 19 and April 30. This drop in revenue led to the hash price hitting an all-time low of $44.43/PH/day on May 1, causing a negative difficulty adjustment of 6% on May 9.
With current hash prices, mining companies are struggling to cover operating costs, with many operating below break-even due to higher implied hash costs than the current hash price.
Pressure to upgrade equipment is mounting, but financial challenges are hindering mining companies from expanding their fleets and upgrading to more efficient hardware. Investment in the mining sector has declined, impacting the ability of mining companies to raise funds for expansion.
Public Bitcoin mining companies in North America raised nearly $2 billion in equity financing in Q1 2024, but only less than $500 million has been invested in Q2. The launch of Bitcoin ETFs led some investors to shift away from mining stocks, affecting the funding amounts available for mining companies. Rising debt levels on the balance sheets of some companies like Hut 8 Corp. and TeraWulf Inc. are further impeding expansion.
Challenges in mining industry profitability following halving