The Bitcoin hash rate reached a new all-time high above 245 EH/s on Oct. 3, but at the same time, the profitability of BTC miners is near the lowest levels on record.
With prices in the low $20,000s and estimated network-wide cost of production at $12,140, Glassnode’s analysis suggests “that miners are somewhat on the cusp of acute revenue distress.”
Difficulty, a measure of how “hard” it is to mine a block, is generally a component in determining the production cost of mining Bitcoin. Higher difficulty means more computing power is needed to mine a new block.
Using a difficulty regression model, the data shows an R2 coefficient of 0.944 and the last time the model showed signs of miner distress was during the BTC dump at $17,840.. Currently, it hovers around $18,300, which is not far from the price range seen in the last two weeks.
The hash rate reaching a new all-time high means that miners’ margins will shrink even further and teams that are not profitable can either mine at a loss, assuming that the future price of BTC will eventually make up the cost difference, or they can disconnect and wait until the difficulty goes down or the energy costs improve.
With the recent increase in hash rate, it is likely that the difficulty will also increase in the coming week, with estimates pointing to an adjustment of 6% to 10%.
Below are estimates of the miners’ profitability assuming an electricity rate of USD 0.08 kw/h.
Depending on the capital costs and the operating costs of the miners, the profit statistics above clearly illustrate the tightrope some miners are trying to balance on at the moment.
Despite the strain on profitability, independent market analyst Zack Voell suggested that miners with healthy balance sheets are constantly looking for ways to expand their operations and the recent rise in hash rate could be related to the coming online of miners. Bitmain’s new S19 XPs.
Miners who aren’t broke or suing each other continuing to deploy what they can. Every month has a couple headlines (at least) about new facilities being planned or energized. And a lot of the new hashrate is from XPs coming online
— Zack Voell (@zackvoell) October 3, 2022
Miners who aren’t broke and suing each other continue to deploy what they can. Every month there are a couple of headlines (at least) about new facilities being planned or energized. And much of the new hashrate is from the XP coming online
Is Bitcoin safe?
What investors really want to know is whether or not the price of Bitcoin is safe or if there is an elevated risk of another sell-off fueled by miner capitulation.
According to Colin Harper, head of research at Luxor Technologies:
“Miners are still selling in the current environment (for example, Riot sold 300 BTC last month and Bitfarms 544 BTC). In my opinion, sales in general are more likely to go down, not those of miners in particular. If the BTC price hits $10,000 plus more miners capitulating via BTC sales there would also be a bunch of rigs flooding the market not trying to single out Riot or Bitfarms these are just current updates that we have, plus Hut 8, which didn’t sell any BTC.”
Secondly, Joe Burnett, chief analyst at Blockware Solutions, said the bulk of miner sales have likely passed, reducing the chance of another capitulation-level sell-off.
Burnett told Cointelegraph:
“I think the small miner capitulation Bitcoin experienced this summer knocked out some weak and over-leveraged players. I don’t think we’ll see another significant drop in hash rate without Bitcoin making new lows below $17,600. This It doesn’t mean individual weak miners aren’t going to drop this year and next, but new-gen rigs coming online will probably be enough to keep the hash rate trending up.”
When asked about the hash rate increase putting pressure on higher difficulty settings and the on-chain effect on miner profitability, Burnett said:
“For sure. Individual weak players can drop out and get wiped out, but it won’t be a sudden significant ‘mining cap’ without a drop in BTC price. Margins are definitely tight.”
According to Glassnode, his model of the “implied income stress of the Puell Manifold, with the observation of the explicit stress of Difficulty Tape Compression” recently moved out of the zone where “miner capitulation is statistically likely”, suggesting that another miner-driven sale is unlikely at this point.
Analysts, however, were careful to stress that the aggregate size of Bitcoin held by miners is close to 78,400 and any sharp downward movement in BTC price could trigger distressed mining outlets to sell off. .
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