The More Bitcoin Miners Mine, the More They Lose

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Overview

Paul Hoffman, analyst at Best Brokers, points out that 116,550 Bitcoins have been mined worldwide so far this year. Their value is equivalent to 8.2 billion USD. US companies earned 44,102 Bitcoins, equivalent to 37.8% of global output.

The difficulty of miners is increasing after the halving event as costs increase significantly faster than the price of Bitcoin. Specifically, before the halving event, the amount of electricity needed to mine 1 Bitcoin was 407,059 kWh, corresponding to a cost of about 52,144 USD.

However, currently, mining 1 Bitcoin requires 862,636 kWh, equivalent to 110,504 USD under the average electricity price in the US (0.1281 USD/kWh). Although mining costs have doubled, since the beginning of the year, the price of Bitcoin has only increased by 55%. Currently, the price of this cryptocurrency is above 68,500 USD and at one time reached 73,000 USD.

In the US alone, the country with the largest mining capacity in the world, miners spent up to 2.7 billion USD on electricity. Since the beginning of 2024, Bitcoin mining in the US has consumed a whopping 20,822 GWh (1 GWh = 1 million kWh) of electricity, Mr. Hoffman said.

'With an average commercial electricity price of 0.1281 USD/kWh, the cost to mine Bitcoin is 2.67 billion USD,' he said. 'This amount of electricity could charge every electric vehicle in the US 87.5 times, or supply 1.98 million households (1.51% of US homes) for 1 year'.

Although it consumes a lot of energy, Bitcoin is becoming increasingly green. The Bitcoin ESG Forecast report estimates that the proportion of sustainable energy used in Bitcoin mining has increased to 54.5% in January 2024, an increase of 3.6 percentage points in 2023.

Miners' efforts to survive

Reuters commented that in the context of mining rewards being halved, difficulty increasing and the birth of Bitcoin ETFs, miners' difficulties are growing. Since the beginning of the year, shares of Marathon Digital and Riot Platforms have dropped 10% and 33%, respectively, despite the sharp increase in the price of Bitcoin.

Mining company stocks often move under the price of Bitcoin. However, since the launch of spot ETFs, many investors have sold these stocks to buy into Bitcoin ETFs.

Additionally, miner revenue per transaction has dropped from more than $192 in March 2024 to just $60, the lowest since September last year, under data from Blockchain. com. Meanwhile, mining difficulty hit an all-time high in early May 2024.

Mining businesses must try to increase efficiency by spending money on better miners, said David Morrison, an analyst at brokerage firm Trade Nation.

JPMorgan revealed that US-listed Bitcoin mining companies raised more than $3 billion in the first quarter of the year, the highest in the past two years. Most of this capital helps 'increase the scale of operations and invest in more efficient equipment'.

Additionally, to reduce energy costs, some companies have moved mining operations to countries with cheap electricity prices and governments that are more friendly to digital assets.

'We are less optimistic about the US because of. potential risks, such as taxes,' said Youwei Yang, chief economist at Bit Mining. Analysts are expecting there to be mergers between mining companies, in which businesses with large capital target inefficient units.

Additionally, in search of additional revenue, some mining companies are entering the field of artificial intelligence. Bit Digital, Hut8 Iris Energy and Core Scientific have begun providing cloud computing services for AI.

"Too many bitcoin miners operate on a small scale, while demand for AI and data centers continues to grow," said Bernstein analyst Gautam Chhugani.