Bitcoin’s mining difficulty has reached a new all-time high of 109.78 trillion, marking a 1.16% increase in the latest adjustment. Over the past 90 days, there has been a significant 24% surge in difficulty, with a 52% rise in the last quarter of the year. Additionally, the hash rate of Bitcoin has surpassed 800 EH/s for the first time this month, indicating the network’s robust performance.
Despite these positive signs for the network, miners are facing challenges due to halved block rewards and the increasing difficulty, which are putting pressure on their profitability.
CoinShares’ Q3 Bitcoin Mining Report notes that while mining costs have risen due to these factors, the recent spike in hashprice has provided some temporary relief. However, this relief is not expected to last, and miners will need to adapt to the long-term pressures arising from escalating costs and competition for resources.
The report also highlights that cost-of-production pressures are likely to persist, driven by intense competition for land and power resources. Hyperscalers are outbidding miners, leading to higher operational costs. Moreover, machine prices, which are closely tied to Bitcoin’s value, are anticipated to rise, further increasing capital expenditures and depreciation expenses.
To combat these challenges, miners are exploring various strategies such as holding onto Bitcoin or forming partnerships in artificial intelligence (AI) to explore new revenue streams. Companies like TeraWulf and Cipher are well-positioned to leverage AI opportunities, thanks to their partnerships with energy firms and investments in clean energy. However, the financial benefits of these initiatives may take time to materialize.
On the financial front, debt markets remain liquid, prompting miners to issue new debt despite the rising interest expenses and the looming risk of insolvency. Public miners like Argo are particularly vulnerable, especially in the event of a downturn in Bitcoin prices, given their negative shareholder equity and limited fundraising options.
Interestingly, the average cash cost of mining Bitcoin rose to nearly $55,950 in Q3, a 13% increase from Q2, with total costs, including non-cash expenses, reaching around $106,000. Companies like TeraWulf are leading the way in cost efficiency, benefitting from lower debt expenses. Meanwhile, companies like Riot and Marathon have seen growth in production quarter-over-quarter.
In conclusion, while Bitcoin’s network performance remains strong, miners are grappling with mounting challenges that require innovative solutions and strategic adaptations to navigate the evolving landscape of mining operations.