As margins shrink, miners face challenges from rising energy costs, flat bitcoin prices and a new hash rate at ATH.
According to Coin Metrics data, Bitcoin's total hashrate has reached a new record high just weeks after the industry ended its two-month capitulation period.
Miners will be tested to see if they can sustain profitability in a more difficult environment. As the price of gold remains flat, balance sheets are under pressure. However, hash rate and difficulty in mining continue to rise.
The summer began with a broad miner capitulation. This was due to the steep plunge in bitcoin prices, which erased all gains from the previous year. Public miners who had committed to keeping their bitcoins for the past year were forced to sell their daily mined bitcoins to pay operating costs and shrinking margins. Some would sell the BTC that they had kept in cold storage later.
Bitcoin mining is an unregulated market in which players seek to find the lowest energy resources and the most favorable jurisdictions around the world to maximize their profits. It becomes harder to mine bitcoin as more people join the market. Miners with low margins are forced to leave the market as difficulty rises. The network reduces the mining difficulty to make it easier to mine bitcoin. This allows miners to join the market and makes it more convenient.
Miners face a difficult environment with the bitcoin price showing no signs of sustained recovery and the hash rate hitting new highs.
"The biggest issue for miners right this moment I think is that energy prices have gone up while Hash Rate has gone up, and bitcoin prices kept low," Fred Thiel (CEO of Marathon Digital Holdings, a Nasdaq-listed Bitcoin miner), told Bitcoin Magazine.
Thiel says that not all industry players are equally affected. This will benefit miners who have the capital and are well-positioned to take advantage of this opportunity.
Marathon, Thiel claimed, is one of them.
He stated that "our models were built around the belief that bitcoin will continue to move along just like it is now, up or down" for the remainder of the year. We plan for [that] scenario as a company."
Thiel stated that Marathon is in a favorable position when it comes to pushing the global hash rate higher. Marathon's growth not only reduces the effects of the new ATH, but also contributes towards the higher reading.
He stated that "We are focused on increasing our hashrate very significantly, from three EH [exahash] up to 23 EH by the middle of next year." "So, we are actually contributing to this growth in hashrate."
According to the executive, the hash rate is expected to rise as more machines are delivered from other big-industry players and deployed in farms around the world.
"There were many orders for miners that were publically disclosed last year and earlier in the year. So you can assume that people will follow through with those deployments."
However, this is not true for smaller players.
"I believe that the people who don't follow through are the smaller miners, the less well-capitalized. Thiel said that either they have difficulty financing the purchase of miners or their energy costs are a bit higher than usual.
As bitcoin prices rose steeply, miners enjoyed a long honeymoon of profits. Miners enjoyed incredible dollar terms returns on HODLed coin, and saw their margins rise as bitcoin reached new heights. This reality led many companies to take on debt to expand their operations and leverage up their businesses. Unfortunately, this strategy quickly fell apart as bitcoin prices plummeted. These miners are now under more pressure due to the rising hash rate.
The White House Report suggests that geopolitical tensions are heating up in the industry as a result.
The new high in Bitcoin’s hashrate comes 18 months after China banned bitcoin mining. This move cut the network's haveh rate in half and local miners began moving their operations to other countries. The U.S. accounted for a large share of global Bitcoin mining's hash rate, and was seen as a major destination for outcast businesses. The machines were also welcomed by Russia and Kazakhstan.
The U.S. however, which currently holds 37% of Bitcoin's global haveh rate according to the Cambridge Centre for Alternative Finance, has begun to show signs of hostility towards the industry.
The White House Office of Science and Technology Policy (OSTP), driven by concerns about energy consumption, published a detailed report last Wednesday recommending that the Biden Administration ensures the development of Bitcoin and other cryptocurrency in the country. It also recommends that climate change concerns be addressed.
The document is over 30 pages long and is the result of Biden’s executive order regarding digital assets. It is Biden's March 2022 executive order. The OSTP recommended that Congress and the administration consider banning or limiting the use of proof-of-work in the U.S.
One positive acknowledgement made in the report is the use of bitcoin mining to meet baseload energy demand.
Thiel explained to Bitcoin Magazine that "you're adding extra capacity to the grid when it is needed and you are not really a parasitic loads on the grid" because you're behind meter using energy that would otherwise go wasted. You are encouraging more renewable production if you place bitcoin mining behind the meter at renewable sites.
Thiel also pointed out that the majority of the harsh language in this report could be part of political games, as it is midterms year in the U.S.
He said that there is a lot of political activity and some of it is positioning by politicians. "I don't believe there will be a blanket ban on proofs of work.
Although it is possible, it seems unlikely that the U.S. will ban PoW. This is due to the differences in its government and China's. Also, the extent to which Bitcoin mining is integrated into power grids in the US.
But, even if such an event were to occur, the network would still be able to withstand an attack. It is well-positioned to show similar results in the event of a U.S. ban. The network did not perish in China when mining was prohibited. China had the largest share of the hash rate at that time. Despite this, it is possible for the network to continue to thrive in the U.S. despite a ban. This is evident by the fact there are still machines mining in China, which according to CCAF, accounts for more than 20% of global Bitcoin hash rates.
Title: Bitcoin Hash Rate Hits New Highs As Price Stays Flat — What It Means For Miners
Sourced From: bitcoinmagazine.com/business/what-hash-rate-ath-amid-flat-prices-mean-for-bitcoin-miners
Published Date: Tue, 13 Sep 2022 21:17:08 GMT
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