Cryptocurrency mining 2023: is the worst over?
3 min readAnyone who worked in the mining industry didn’t have too much to laugh about in the past year. A toxic combination of falling Bitcoin prices and rising energy costs made the business unprofitable. The companies drove in heavy losses – some were even close to the end. Mining giant Core Scientific has filed for bankruptcy. BlackRock stepped in and kept the business going with a 17 million USD debt loan. Other investors also tried to take advantage of the crisis. Galaxy Digital bought Argo Blockchain’s Helios facility for 65 million USD. The facility includes around 50,000 mining devices.
For the new year 2023, the situation relaxed a little. After the upheavals at the end of the year, the market repositioned itself. Bitcoin infrastructure company Blockstream raised 125 million USD in investor funds to expand its mining services. In the meantime, some in the community see the worst as already overcome. But has the mining business actually consolidated? A look at the first quarter of the new year reveals more.
Fee market on the rise?
Two factors have clearly come into play since the beginning of the year. First: The Bitcoin price has risen significantly. At the end of the year it was still around USD 16,600, but at the time of writing it was around USD 28,000 – an increase of almost 70 percent since the beginning of the year.
Secondly: The miners have been able to bring in higher income due to increased transaction costs. The network also owes the increase to the popularity of ordinals. Bitcoin gains and the recovery in the fee market brought miners 1.8 billion U.S. dollar. 42 million US dollars was accounted for by income from transaction fees. This corresponds to only 2.3 percent of the total income. In the long term, however, the fee market should gain in importance due to the inevitable shortage of halving block rewards.
US mining still turbulent
The United States has the largest share of the mining business. according to estimates they currently handle around 40 percent of the hash rate. But despite increasing revenues, the industry there is still facing major challenges. On the expenditure side, it is still at the mercy of high energy costs.
The average prices for industrial power consumers have increased from 7.3 to 8.3 cents per kilowatt hour compared to the previous year elevated. A change of just one cent per kilowatt hour does not seem serious at first. However, considering the scale at which US mining farms operate, even small increases in price can result in huge costs. The electricity prices in the USA are relatively low in a country comparison. In order to continue to make profits, however, one is dependent on a positive price development of the BTC price there as well. Because the electricity price is not the only factor that determines the profit margin.
Biden government ups the pressure
The US miners are experiencing additional pressure from plans by the Biden administration. This plans to tax the electricity used for crypto mining at 30 percent. “Any company that uses its own or rented computing resources to mine digital assets would be subject to a consumption tax of 30 percent of the cost of electricity consumption for mining digital assets,” it said in a letter of the Treasury.
The requirements are to be introduced over a period of three years. “At current revenues, even newer-generation ASICs like the Antminer S19 XP would still miss breakeven with the additional 30% tax,” one says analysis report by CoinMetrics. However, it is still uncertain whether the tax proposal from Biden’s budget will be implemented in this form, as the Republicans form the majority in the House of Representatives and an appeal is expected.
Despite ongoing uncertainty on the US market, the mining sector is still stable overall. The hash rate seems unimpressed so far and will climb to new highs in the first quarter of 2023. In the past, the network has already proven that it can also compensate for major failures within a short period of time. When China banned mining in 2021, hashrate recovered after just a few weeks.
