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Bitcoin miners are ceasing activity as electrical costs add to falling revenues
Bitcoin’s electrical cost breaches for the second time in past five years
Mining companies are reporting losses in third-quarter earnings
Bitcoin is already having a hard time surviving the crypto winter. The top crypto asset is lurking below $16,000 and is showing signs of extreme instability. As if this was not enough pressure for BTC miners, the rising energy costs have now added to their woes.
Amidst this bear run, Bitcoin’s electrical cost was recently breached for the second time in five years. This means that regular miners will now have to spend more cash for mining than the profits they are earning. In response, several Bitcoin miners are opting for turning off their rigs.
Many Bitcoin miners are now turning their rigs off.
Bitcoin's electrical cost has just been breached for the 2nd time only in 5 years. The electrical bill for the average miner is now greater than the income earnt. pic.twitter.com/0yG3pmrGKO
— Charles Edwards (@caprioleio) November 9, 2022
As per data by Glassnode analytics, there has been a sudden decline in the balance of miner wallets. It plunged by 9,402 BTC to a 10- month low of 1.826 million BTC last week. The net position of miners or the 30-day change of BTC supply held in miner addresses also slipped to -10,972 BTC, a record low since January. Crypto analysts believe that this phenomenon may continue giving miners facing high operational costs a tough time.
Moreover, Bitcoin educator Dan Held believes that miner capitulation combined with FTX exchange’s collapse may indicate that the market has reached its bottom. Bitcoin advocate Mikael Lemberg supported the notion and said that the pattern is being repeated from previous bear runs.
Although, another crypto enthusiast pointed out that the Bitcoin hash rate has recently increased by 9.52%. This argues with the initial observation that BTC miners are pulling away. Although, this could also be due to the sudden influx of ETH miners to the Bitcoin network.
Mining Companies Take the Fall
Apart from individual miners, BTC mining companies are also reporting losses. Bitcoin miner Canaan today reported its 3rd-quarter earnings of $137.5 million, a 40% dip from 2nd-quarter earnings. The gross profit of the company has also plunged to $32.9 million, down by 74% from the 2nd-quarter. In a press release, the company informed that it is tightening cash management to streamline its expenses and preserve cash for production capacity. The move is to protect the company from “market conditions,” which it claims are expected to keep deteriorating.
Another crypto mining farm, Bitfarms reported that it reduced its direct cost of production by 5% to $9,400 BTC. The company has sold 2,595 BTC in aggregate proceeds of $56 million and it has also paid $94 million in debt since June 1st. This was after the company reported a $173 million loss through operating costs in Q2.
Canaan and Bitfarms’ disappointing financial reports follow similar drops revealed by other publically listed mining companies. Argo blockchain recently revealed a 14% drop in its H1 2022 revenue, which caused a 51% crash in its stick price. In fact, mining companies are also resorting to selling off their BTC holdings to offset losses. Earlier this year, Bitfarms and Core Scientific both sold off a significant portion of their BTC reserves. This has reversed an earlier pattern where BTC miners were the largest net holders of the cryptocurrency.