Low Hash Price, Skyrocketing Energy Costs Make for Tough Q3 for Bitcoin Miners
Energy problems in North America and Europe and prevailing market conditions have produced another dismal quarter for Bitcoin (BTC) mining operators on both continents.
The latest Q3 mining report from the Hashrate Index has highlighted several factors that have led to a significantly lower hash price and higher cost to produce 1 BTC.
Hash price is the measurement used by the industry to determine the market value per unit of hash power. This is measured by dividing the dollar per terahash per second per day and is affected by changes in mining difficulty and the price of BTC.
As the Hashrate Index reports, Bitcoin’s hash price was given some reprieve in mid-Q3 as heat waves during the US summer led to a drop in hash rate, which corresponded to a small BTC price rise.
But the price of Bitcoin fell below $20,000 again and hashrates climbed to new records in September, sending the price of hashish near all-time lows.
Miners’ profit margins were further threatened by rising energy costs in North America and Europe. The latter has been particularly hard hit by a “combination of mismanaged renewable energy policy, underinvestment in oil and gas, decommissioning of nuclear power plants and Russia’s war with Ukraine”, which has sent energy prices soaring.
Related: Top 3 Reasons Bitcoin Hash Rate Continues to Hit New Records
US miners have had to contend with the average cost of industrial electricity increasing by 25% from $75.20 per megawatt hour to $94.30 per megawatt hour from July 2021 to July 2022. This has also had an effect on hosting service providers increasing power prices their in hosting contracts.
As hashish prices have fallen, some mining operators with mid-range equipment are scrambling to reach break-even cost margins. In the past, retail miners have either abandoned or sold rigs that are no longer profitable to mine.
Liquidating these assets is also becoming more difficult as Bitcoin mining values have been in decline throughout 2022. Rig prices fell significantly in May and June, but “flattened” in August and September according to the report, while the picture remains grim:
“Old generation machines like the S9 experienced a sharp decline in late June amid Bitcoin’s freefall to $17.5k. With mining economics in the dumpster, the S9 and similar rigs have become unviable except in the cheapest energy markets.”
Publicly traded mining companies have also faced increasing pressure with rising interest rates and greater difficulty in obtaining lines of credit. This has led to some companies turning to share raising, which has the disadvantage of diluting shareholders to lower share prices.
However, these offerings on the market allow for quick capital raises that can help fund continued expansion and operating costs through the ongoing bear market.
Miners have also had to sell BTC holdings to keep production going in 2022. However, this rate has “gradually slowed” through the third quarter, with public miners selling fewer BTC than their monthly output in August and September for the first time since May.
The Hashrate Index also warned that Q3 could be a harbinger of tougher times for the mining industry with the potential for further distress sales, bankruptcies and miner capitulation as the year draws to a close.
