Mining charts illustrate the Bitcoin market
Bitcoin’s price is down about 70% from its last all-time high, and the mining sector feels the full weight of the ongoing bear market. A lot of fear, uncertainty and doubt (RD&D) often spreads about miners during bear markets, but the data on how these operators are affected and behave in this environment is simple. This article outlines six key datasets that illustrate the effects of the bear market on bitcoin miners and their operations.
Monthly dollar-denominated income is a characteristic calculation that signals the state of the mining sector. Under bearish market conditions, miners expect revenues to fall, and the bar chart below illustrates that this is exactly what is happening. This calculation is primarily due to a cheaper bitcoin price stated in dollars. In fact, monthly mining revenues in June are set to record the lowest level in 18 months. From August 2021 to April 2022, miners also enjoyed a comfortable nine-month series of at least $ 1 billion in total sales across the sector. May ended that series, and revenues continue to fall in June.
When you dig deeper into mining revenue, transaction fees are an important (and hotly debated) category of revenue. Many bitcoin advocates and critics argue that a strong fee market is crucial to Bitcoin’s long-term success. And under bullish market conditions, taxes generally represent a significant percentage of monthly mining revenue. But bear markets have historically wiped out this income stream, and current market conditions are no exception. From August 2021 to May 2022, the fees represented about 10% to 15% of monthly income – but since August, this figure has been around 1 percent. In fact, since August, fees have not represented more than 2% of monthly mining revenues as shown in the line chart below.
Mining machines have a very strong positive correlation with the price of bitcoin, and bear markets often cause the prices of these machines to fall sharply. There are several reasons for this relationship, including reprising based on current revenues produced per machine and some basic psychological factors that are unique to the mining sector. Oddly enough, machine prices tend to lag behind bitcoin when the market sells out, and the line chart below illustrates this dynamic. So far this year, prices for mining machines at various levels of efficiency and profitability have fallen by 50% to 60% at the time of writing. If the price of bitcoin continues to fall, the mining hardware market will surely follow.
Not only are hardware prices falling, but older machines are being pushed out of the market altogether as economically rational miners are forced to turn off less efficient hardware to avoid extracting bitcoin at a price higher than the market is willing to pay for it. This effect is most clearly seen in the proportion of hash-rates contributed by Antminer S9s, an old generation of machines developed by Bitmain. Compared to the 35% hash rate that came from these machines a year ago, S9s now contribute just under 5% of the total hash rate, according to Coin Metrics data shown in the chart below. “At these BTC prices, the S9 once again looks like scrap metal,” so Coin Metrics analyst Parker Merritt.
The most accurate calculation for tracking mining revenue is the hash price, which measures dollar-denominated revenue per unit of hash power supplied per second per day. This calculation often fluctuates regardless of price, and it can go down even when the price of bitcoin goes up. The chart below shows growth in mining difficulties and falling cannabis prices since early 2022. In fact, cannabis prices fell below $ 0.10 in late June for the first time since late October 2020. Another symptom of bearish market conditions making life more difficult and less profitable in the mining sector .
Collapsing stock prices for listed mining companies are probably the strongest signal of current market conditions. For all the reasons mentioned above, most mining companies have significantly devalued physical mining values, operate with tighter profit margins and earn a much cheaper digital asset when the price of bitcoin falls. But mining stocks also tend to act as a high-beta game at the price of bitcoin, so when the bitcoin price moves either up or down, the prices of shares in mining companies experience even greater movements in the same direction.
The line chart below shows the normalized one-year result of a dozen different mining companies trading on Nasdaq. Almost every company is down by at least 60% during this period, at the time of writing, with the worst performance – Stronghold Digital Mining – down 94%. Times are tough for bitcoin miners … and their shareholders.
Under bearish conditions, bitcoin markets often look to miners to measure whether sentiment is stabilizing or deteriorating. Miners who sell coins, disconnect machines or liquidate hardware are all signs that, yes, conditions are bad. But ultimately, all of this data follows the price of bitcoin instead of affecting the price of bitcoin. So when any of the datasets above will improve is an open question – it depends on when the bitcoin market flattens out or becomes bullish. Until then, miners will continue to operate according to their existing plans to survive another long bear market.
This is a guest post by Zack Voell. Expressed opinions are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
