Energy issues in North America and Europe and prevailing market conditions have spelled another gloomy quarter for Bitcoin (BTC) miners on both continents.
Hashrate Index’s latest Q3 mining report has highlighted several factors that have led to a significantly lower hash price and higher cost to produce 1 BTC.
The hash price is the measure used by the industry to determine the market value per unit of hash power. It is measured by dividing the dollar by terahash per second per day and is influenced by changes in mining difficulty and the price of BTC.
As the Hashrate Index reports, the hash price for Bitcoin had some respite in the middle of the third quarter, given that the heat waves during the American summer caused a drop in the hash rate, which corresponded to a slight recovery in the price of BTC.
Nevertheless, Bitcoin price dipped below $20,000 again and hash rates hit new all-time highs in September, which caused the hash price to approach all-time lows.
Miners’ profit margins were further threatened by rising energy costs in North America and Europe. The latter has been hit especially hard by a “mix of poorly managed renewable energy policies, underinvestment in oil and gas, the decommissioning of nuclear power plants, and Russia’s war with Ukraine,” which have pushed up energy prices.
US miners have had to contend with the average cost of industrial electricity rising 25% from $75.20 per megawatt hour to $94.30 per megawatt hour from July 2021 to July 2022. This has also had an impact on hosting service providers who are increasing energy prices in their contracts.
As the price of hash has been falling, some mining operators with mid-range equipment are struggling to reach break-even cost margins. In the past, retail miners have abandoned or sold equipment that is no longer profitable for mining.
Liquidating these assets is also becoming more difficult as the value of Bitcoin mining has been in decline throughout 2022. Equipment prices fell significantly in May and June, but “flattened” in August and September, according to the report, although the outlook remains bleak:
“Old-gen handsets like S9s saw a precipitous decline in late June amid Bitcoin’s free fall to $17,500. With the mining economy in shambles, S9s and similar handsets have become unviable except in the cheapest energy markets.
Listed mining companies have also come under increasing pressure with rising interest rates and increased difficulty in obtaining lines of credit. This has led some companies to resort to fundraising, which has the drawback of diluting shareholders with a lower share price.
However, these market offerings allow for rapid capital raising, which can help finance continued expansion and operating costs during the current bear market.
Miners have also had to sell their BTC holdings to maintain production in 2022. However, this pace has “slowed down” throughout the third quarter and public miners have sold less BTC than their monthly output in August and September for the first time since May.
Hashrate Index also warned that the third quarter could be a harbinger of more difficult times for the mining industry, with more distressed asset sales, bankruptcies and miner capitulations possible as the year draws to a close.
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