On Oct. 3, the Bitcoin hash rate soared to a record high of 245 EH/s, but BTC miner profitability remains at its lowest level ever.
Glassnode analysis shows that miners are in a state of “somewhat acute income distress” with prices hovering around the $20,000 mark and an estimated cost of production across the network at $12,140.
Hashrate rate for Bitcoin network. Source: Hashrate Index
The production cost of mining Bitcoin is affected by difficulty. This is the measure of how difficult it is to mine a block. A higher difficulty level means that it takes more computing power to mine a new block.
The data is based on a Difficulty Regression Model. It has a R2 coefficient of 0.944. The last time that the model showed signs of miners’ distress was when BTC’s price surged to $17,840. It hovers around $18,300 at the moment, which is within the same price range as the last two weeks.
Bitcoin: Difficulty Regression Model. Source: glassnode
The new record high hash rate means that miners’ margins will be squeezed further. Outfits that are not profitable can mine at a loss as BTC’s future price assumes that the cost difference will eventually be covered by the price of BTC, or unplug and wait for either difficulty to drop or improved energy costs.
Due to the recent increase in hashrate, difficulty is also likely rising in the coming week. Estimates point to a 6%-10% adjustment.
Bitcoin network hashrate (left) and projected difficulty adjustment. (right). Source: BTC.com
Below are estimates of miner profitability using an electricity rate $0.08 kw/h.
Bitcoin ASIC profitability Source: DxPool
The profit statistics above are dependent on the capital and operational costs of a miner. They clearly show the tightrope that miners are trying to balance at the moment.
Independent market analyst Zack Voell said that miners with strong balance sheets are always looking for ways to expand. The recent spike in hash rate could be due to Bitmain’s new S19 XPs.
Miners who don’t have to be broke or suing one another continue to use what they can. Each month, there are at least two headlines about new facilities being built or energized. A lot of the new hashrate comes from XPs, which are now online
— Zack Voell (@zackvoell), October 3, 2022
Bitcoin is in the clear
Investors want to know if Bitcoin’s price is stable or if there is a high risk of another Bitcoin sell-off due to miner capitulation.
According to Colin Harper (head of research at Luxor Technologies),
“Miners are still selling under the current conditions (for instance, Riot sold 300 BTC last Month and Bitfarms 544 BTC). My estimation is that we are more likely to be driven lower due to general selling than miner selling. BTC prices reaching $10,000 would result in more miners selling their BTC, and a flood of rigs flooding into the market. We’re not trying to pick Riot or Bitfarms. These are the latest updates that we have. Hut 8 didn’t sell any BTC.
Joe Burnett, Head Analyst at Blockware Solutions said the bulk of the miner selling is likely to have passed, which decreases the likelihood of another capitulation level sale-off.
Burnett told Cointelegraph:
“I believe the small miner capitulation Bitcoin suffered this summer knocked out some overleveraged and weak players. Without Bitcoin dropping below $17,600, I don’t think there will be another significant drop in hashrate. This doesn’t necessarily mean that individual weak miners will not drop off in the next year, but new gen rigs being plugged into will likely be sufficient to keep hashrate trending upward.
Burnett responded to questions about the pressure on difficulty adjustments, and the impact on miner profitability.
“For sure. Although some weak players might drop off or get knocked out, it won’t cause a major and sudden “miner capitulation”, without a drop of BTC price. Margins are certainly tight.”
Glassnode’s model of the Puell Multiple’s implicit income stress, with the explicit stress observation from the Difficulty Ribbon Compression, recently left the zone where “minercapitulation is statistically probable,” suggesting that a second miner-driven sale-off is unlikely.
Bitcoin miner capitulation risk. Source: glassnode
However, analysts were careful to emphasize that Bitcoin’s aggregate value is close to 78,400. Any sharp downturn in BTC prices could lead to selling by distressed mining outlets.
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