Bitcoin mining has reached a new milestone as its mining difficulty surged to 109.78 trillion, marking a 1.16% increase according to the latest adjustment made on Sunday. This new level indicates a 24% rise over the past three months and a substantial 52% rise within the final quarter of the year. Concurrently, Bitcoin’s hash rate has crossed the significant threshold of 800 EH/s for the first time this month, signalling a robust performance of the network.
However, while these metrics suggest strength in the network, Bitcoin miners are confronting mounting challenges attributed to halved block rewards and increasing mining difficulty, both of which are placing considerable pressure on profitability.
CoinShares' Q3 Bitcoin Mining Report illustrates this complex situation, noting that while mining costs have increased, a recent rise in hashprice has initially alleviated some financial strain. Yet, CoinShares predicts that this relief is likely to be temporary, advising that miners will need to adapt to persistent long-term pressures arising from soaring costs and intensifying competition for resources.
The report highlights that ongoing cost pressures will likely stem from fierce competition for land and power resources. Hyperscalers, which are larger firms offering more economically viable alternatives, are reportedly outbidding miners, pushing operational costs even higher. Additionally, prices for mining machines, which are closely tied to Bitcoin's market value, are also anticipated to rise, further escalating capital expenditures and depreciation costs.
In response to these challenges, miners are implementing a variety of strategies, including HODLing (holding) Bitcoin and seeking partnerships within the realm of artificial intelligence (AI). Such initiatives could momentarily slow Bitcoin production but have the potential to unlock new avenues for revenue. CoinShares has indicated that companies like TeraWulf and Cipher are strategically positioned to take advantage of AI opportunities due to their partnerships with energy firms and their investments in clean energy solutions. Nonetheless, the financial benefits of these ventures may take some time to materialise.
Despite the challenges, the debt markets remain active, encouraging miners to issue new debt amid rising interest costs and increased risks of insolvency. Publicly traded miners, such as Argo, are facing greater threats, particularly in the event of a dip in Bitcoin prices due to negative shareholder equity and constrained fundraising options.
Data from CoinShares reveal that the average cash cost to mine a Bitcoin soared to nearly $55,950 in Q3, reflecting a 13% increase from the previous quarter. When accounting for non-cash expenses, total costs escalated to approximately $106,000. Amidst this challenging landscape, companies like TeraWulf have emerged as low-cost leaders, benefitting from decreased debt obligations, while other firms, such as Riot and Marathon, have reported production growth from one quarter to the next.
Source: Noah Wire Services