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In summary
- Amid declining revenues and rising operating costs, Bitcoin miners continue to invest in new, specialized hardware, showing confidence in the future of the network.
- Bitcoin’s hash rate remains near all-time highs despite falling transaction fee revenue and rising mining difficulty.
- Miners are adopting strategies such as retaining part of their mined supply and diversifying into AI computing to mitigate revenue challenges.
Amid declining revenue and rising operating costs, industry experts told Decrypt that Bitcoin miners continue to invest in new and specialized hardware, showing strong confidence in the future of the leading Cryptocurrency’s network despite short-term struggles.
According to a Glassnode report published this week, Bitcoin’s hash rate, a key measure of mining activity, remains near all-time highs, down just 1%, even as revenue has plummeted.
The mining industry is currently facing a dual challenge: rising mining difficulty and declining transaction fee revenue. As the hash rate increases, so does the difficulty of mining and earning a BTC block reward, driving up production costs.
This, combined with declining demand for high-fee transactions such as Rune tokens and Ordinal NFT types, has reduced miner profitability in recent months. Still, miners continue to invest in new ASIC hardware, in part due to the need to stay competitive in an environment where older machines are quickly becoming obsolete.
A major factor driving this trend is the improvement in energy efficiency in modern ASIC equipment, which helps miners manage operating costs.
Speaking to Decrypt, Illia Otychenko, lead analyst at cryptocurrency exchange CEX.IO, said that the energy efficiency of dedicated Bitcoin mining hardware “has more than doubled” from 2018 to 2023, “significantly reducing energy consumption per coin produced.”
This advancement allows miners to mitigate rising electricity costs and mining difficulty, keeping profitability intact even amidst unfavorable market conditions.
While the price of Bitcoin remains relatively strong, transaction fee pressure has eased, further reducing miners’ profits. With transaction fee revenue now a small fraction of what it used to be, miners are relying more on block subsidies to maintain their operations.
Interestingly, miners are now changing their strategies in response to this revenue pressure.
Historically, they sold most of their mined Bitcoin to cover operational costs, but the report highlights that many are now holding back a portion of their mined supply in treasury reserves. For example, Marathon Digital, announced in July that it would adopt a “full HODL” strategy, saying it would no longer sell its mined BTCs. In fact, it has been buying more.
Jeffrey Hu, head of investment research at HashKey Capital, sees this as a sign of confidence in the long-term value of Bitcoin.
“Miners holding onto a portion of their mined supply suggests they are betting on future price appreciation,” Hu told Decrypt. “It’s a sign of confidence and could reduce selling pressure in the market, potentially supporting prices.”
However, Hu also warns that this strategy carries risks, especially if miners are forced to sell reserves during dips, which could exacerbate selling pressure.
Ryan Lee, chief analyst at Bitget Research, attributed the reasons behind the hash rate increase in part to the reintroduction of older mining equipment, which is becoming profitable again with Bitcoin’s price gains over the past year.
“Older machines are being put back into operation as the price of Bitcoin makes previously unprofitable hardware viable. This, combined with new investments in more efficient machines, is driving the overall hash rate higher,” Lee said.
He also points to recent regulatory support in regions like Russia, along with positive signals from figures like former President Donald Trump, who has expressed support for Bitcoin and the cryptocurrency industry amid his latest race to return to the White House. Such changes have strengthened the hash rate by reducing market uncertainty, Hu noted.
While these factors help offset some of the revenue challenges, experts agree that miners need to explore alternative revenue streams to ensure long-term profitability. When Decrypt conducted a survey on the Bitcoin mining landscape in 2024 in July, companies were perceived to be going through something of an “identity crisis”—but it’s a situation that could ultimately help them in the long run.
Doug Petkanics, co-founder and CEO of Livepeer, suggested that Bitcoin miners are well positioned to diversify into AI computing, which requires vast amounts of computing power.
“The demand for AI computing power is growing exponentially. With their existing power and cooling infrastructure, miners could tap into this market by adding GPUs and offering a new revenue stream,” Petkanics said.
Diversification could be key to surviving in the increasingly competitive landscape of the mining industry. Companies like Core Scientific and Bitdeer are among those that are providing computing power for AI needs to make up for potential shortcomings in their Bitcoin business.
Otychenko predicts further consolidation, with capital-rich miners outperforming smaller operators.
CleanSpark’s acquisition of GRIID for $155 million in June this year is a prominent example, increasing its hosting capacity as part of its growth strategy. Similarly, Bitfarms recently acquired Stronghold Digital Mining, while Riot Platforms acquired a 19% stake in Bitfarms to influence its direction.
Companies like Marathon Digital also see future acquisition opportunities to secure low-cost power and scalable infrastructure.
“We could see more mergers and acquisitions as larger miners absorb struggling competitors to expand market share,” he said. For those unable to adapt, rising operating costs may prove unsustainable, leading to a restructuring of the industry.
Hu also points to the possibility of new financial products designed to protect miners from market volatility, as well as innovative ways for mining pools to generate additional revenue, such as merge mining for new layer 2 solutions in Bitcoin.
“The mining industry could also grow in regions such as the Middle East, where natural resources and a rapidly growing cryptocurrency business present new opportunities,” he added.
However, even with diversification, miners’ profitability still depends heavily on block rewards, which currently account for more than 90% of their income.
“Transaction fees only become significant during fee spikes, as we saw with Runes and Ordinals, but such events are temporary,” Otychenko said. “Block rewards remain the primary revenue driver.”
Lee echoed this sentiment, warning that miners will eventually need to rely more on transaction fees as block rewards decrease with each halving cycle. He predicted that the price of Bitcoin could surge during the next bull cycle, potentially reaching $150,000.
This would attract more retail participants into mining as smaller players enter the market by purchasing older, more affordable machines.
“While larger miners may shift towards asset management (…) retail miners could generate a steady cash flow if the price of Bitcoin continues to rise,” Lee concluded.
Edited by Andrew Hayward and Ryan Ozawa
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