The BTC mining industry is currently facing a number of challenges, from rising costs, increasing competition, to increasingly complex financial conditions. CoinShares’ latest Q3 Mining Report provides an in-depth look at the current state of the industry and its outlook for the future.
Bitcoin Production Costs Hit All-Time High
Rising production costs are one of the main challenges for miners. As mining difficulty increases and hash rates decrease, the average cost to produce one Bitcoin is now 49,500 USD, up from 47,200 USD in Q1.
This figure only includes cash costs; depreciation and stock-based compensation expenses increase the estimated average cost to 96,100 USD per Bitcoin.
To reduce these costs, miners adopt energy efficiency strategies such as reducing consumption and using alternative energy sources.
However, some miners face challenges in maintaining profitability in these conditions.
The FTX collapse and rising interest rates have also had a major impact, making it harder for miners to access funding. Many are now opting for alternative funding, such as issuing shares. This approach has the consequence of diluting the value of the shares, which can be disappointing for investors.
CoinShares notes that while share issuance is a funding solution for miners, the dilution effect of shares remains a major challenge for shareholders, as noted by analysts James Butterfill and Max Shannon.
Bitcoin Miners Face Rising Costs and Fierce Competition
Butterfill and Shannon predict that Bitcoin’s hashrate will reach 765 EH/s by the end of 2024, up from the current 684 EH/s, and potentially reach its theoretical maximum by 2050, which would cut carbon emissions from natural gas by 63%.
On the other hand, the hash price is expected to continue to decline until the halving event in 2028:
“The hash price, a potential indicator of profitability for miners, hit a new low this year. With our forecasting tool, we predict the hash price will continue to decline, but remain in the $50–32/PH/day range until the next halving in 2028.”
Competition in the BTC mining sector is also expected to become increasingly fierce, with miners with low costs and high efficiency having a greater advantage.
“The long-term economics of Bitcoin mining will likely face pressure due to ongoing halvings and increased competition from independent miners, corporations, and even governments,” they added.
Cormint, a private miner, was noted as the lowest cost BTC producer at 16,700 USD per BTC, followed by TeraWulf at 18,700 USD per BTC thanks to fixed power contracts and energy management strategies.
The ability to manage costs effectively is a determining factor in the long-term success of these companies, as noted in the report.
Riot, on the other hand, had the highest costs at 65,900 USD per BTC, but earned 13.9 million USD in power savings credits in Q2 2024, which helped lower its net electricity expenses.
Can Bitcoin Mining Survive the Storm?
The CoinShares report also analyzes the different approaches miners are taking to overcome existing challenges. Some miners, such as Riot, Cleanpark, and Bitfarms, combine capital efficiency and diversification, focusing on efficient growth and the acquisition of existing assets rather than building from scratch.
Meanwhile, other miners like Core Scientific are starting to move into artificial intelligence (AI) infrastructure to stabilize revenues and reduce reliance on BTC volatile price.
Analysts conclude that the future of the BTC mining industry will depend heavily on effective cost management and strategic capital allocation. Miners with a strong strategy will be better prepared to face challenges, both from increasing mining difficulty and market volatility.
The report states that listed mining companies need to maintain profitability by reducing costs, reducing reliance on equity capital markets, and addressing the challenges of high share dilution, as well as supporting capital expenditure (capex) efforts for future growth.
