2023 Q3 Bitcoin Mining Report: Hash Price, ASIC Price, US Electricity Price

With Q3 behind us, we are back with another quarterly Bitcoin mining report, documenting all the notable changes and trends that have occurred over the past three months.

Our latest report covers hash price, common network data (hash rate/difficulty/transaction fees), inscriptions, ASIC market, energy market, Bitcoin mining company stocks, and more.

Hash price volatility in USD hits all-time low

Thankfully, the USD-denominated hash price continued to rise in Q3, with Bitcoin reaching a yearly high just over $30,000. The average Bitcoin price in Q3 2023 was $28,100 ($26,350 in the first three quarters of 2023), which was enough to provide some support for the USD-denominated hash price, preventing it from falling significantly as Bitcoin mining difficulty increases.

Nonetheless, while the hash price was above $70/PH/day in the first half of Q3, it fell below $70/PH/day in August and has been trending towards all-time lows since then (in fact, at the time of writing, it is just below $60/PH/day and is approaching its all-time low of $55/PH/day). The average USD hash price in September was $61.71/PH/day, compared to the average prices of $61.94/PH/day and $61.90/PH/day in December and November 2022, respectively, when the price of Bitcoin fluctuated between $16,000 and $17,000.

Hash price in USD (spot and 7-day moving average)

That said, overall, 2023 has been a more favorable year for hash price than it would have been otherwise (at least so far). When we compare monthly and annualized returns since 2017, this year has been less volatile than any other year; Bitcoin’s 63% recovery in the first three quarters of 2023 was enough to offset the 59% increase in Bitcoin’s 7-day average hash rate over the same period (in addition to Bitcoin’s price recovery, hash price also received a small boost from transaction fees along the way).

In the timeframe examined below, 2018 was by far the worst year for hash price, followed by last year’s bear market. The best year was during the unprecedented bull run in 2017, followed by 2020 — which may surprise some readers, as it was the same year that Bitcoin’s third halving cut the block reward from 12.5 BTC per block to 6.25 BTC.

Year-to-date changes are shown on an annualized basis for each year except 2023 | Source: Hashrate Index

Transaction fees remain relatively high but are starting to decline

In the third quarter of 2023, transaction fees accounted for 2.7% of all block rewards, significantly lower than 8.17% in the second quarter, but still higher than 2.3% in the first quarter.

Despite a decrease in transaction fee revenue in the second quarter, miners are still earning revenue in the third quarter compared to last year’s figures. In the third quarter of 2022, transaction fees accounted for only 1.7% of all block rewards, and the average level for 2022 was even lower at 1.64%. So far in 2023, transaction fees have accounted for 4.38% of block rewards.

As discussed in our Q2 2023 report, the growth in transaction fees in 2023 stems from a paradigm shift in blockspace market dynamics away from inscriptions/ordinals — a new standard for creating non-fungible tokens (NFTs) on Bitcoin.

As shown in the chart below, the vast majority of these transaction fees were generated during a brief burst in May. In fact, in May alone, miners netted 1390.89 BTC ($38,156,799), or 66% of all-time fees (as of the close of Q3 2023). This revenue came from a surge in demand as collectors and inscribers competed for BRC-20 tokens, a subset of Bitcoin that uses the OP_CODE feature to create a text series of inscriptions.

Daily and total Bitcoin mining transaction fees for Inscription

Inscription daily transaction fees and all-time fees, source: dataalways Dune dashboard

The chart below confirms that inscriptions are falling significantly. So far in October, inscriptions have accounted for their lowest share of both transaction fees and volume since the first quarter. On average, inscriptions accounted for 45% of daily transaction volume and 14% of all daily transaction fees in the third quarter of 2023; the averages in the second quarter were 32% and 16%, respectively, and the averages in the first quarter were 3% and 8%, respectively.

Daily Bitcoin transaction share and transaction fees

Sources: Hashrate Index, dataalways Dune dashboard, Coinmetrics

ASIC prices hit record lows

Bitcoin mining ASICs continued to decline in 2023, with all models hitting record lows in the third quarter as mining profits continued to decline.

As shown in the chart below, the first-tier new-generation ASIC miners we categorize (those with an efficiency of 28-31 J/TH) have gradually separated from other miners over the past year; their premium prices have gradually increased since April, and this gap has continued to increase since then. In early 2023, all tiers of miners saw a brief rise in prices as hash prices rose, and in the second quarter, they saw a brief price rise again, supported by transaction fee revenue driven by inscriptions.

Bitcoin Mining ASIC Prices per Efficiency Tier

Source: Luxor ASIC Trading Desk

When we look at the price changes of different ASIC efficiency tiers listed in 2023, the first quarter is a bit different. Every tier (except for the next generation) gained value in the first quarter due to the rebound in hash prices; conversely, the next generation like the S19 XP was a bit oversold in the first quarter as the recovery in hash prices made the less efficient miners more attractive.

The situation was different in Q2 and Q3, with overselling accelerating, especially for older and less efficient models. The chart below highlights the point that miners are starting to differentiate between the new generation of ASIC miners, first-tier (28-31 J/TH) and second-tier (34-38 J/TH).

Source: Luxor ASIC Trading Desk

Antminer S21

Bitmain launched its latest ASIC model at the World Digital Mining Summit in September: the Antminer S21, which will be available in air-cooled and water-cooled versions. The new model is the first Bitcoin mining ASIC ever to achieve an efficiency of less than 20 J/TH.

Antminer S21 compared with other popular mining machines | Source: Hashrate Index

Bitmain could start shipping the S21 model as early as December, though a January shipping date makes more sense. The company plans to manufacture at least 50,000 miners per month for the next 18 months, split 50/50 between air-cooled and water-cooled models, but if there is enough demand, they could make up to 100,000 miners per month, a Bitmain representative told Hashrate Index.

At the World Digital Mining Summit, Bitmain announced attractive promotional prices for S21 bulk pre-orders. For the first phase of pre-orders, a minimum purchase of 1.2 EH/s is required (6,000 units for air-cooled models and 3,380 units for water-cooled models), and Bitmain is selling it for $14/TH. The price for air-cooled models is $2,800 per unit, and the price for water-cooled models is $4,690 per unit. The second phase of orders costs $19.6/TH ($3,920 per air-cooled model and $6,566 per water-cooled model), and both require a minimum order quantity of 1.2 EH/s.

It should be noted that this is the promotional price of the Antminer S21 when it was launched, and the price of subsequent orders will be higher than the promotional price. In addition, the pricing of secondary sellers is close to the promotional price, and many suppliers sell models in the range of 14-15 USD/TH.

U.S. electricity prices remain stable

This time last year, many miners operating in the United States were struggling in a dire market environment with low hash prices and severely escalating electricity prices. In the third quarter of 2022, average industrial electricity prices in the United States reached an unprecedented peak of $94 per megawatt-hour, driving some of the largest players in the field (namely Compute North and Core Scientific) bankrupt.

Average industrial electricity price per MWh in July 2023

Source: EIA

Fast forward to October 2023, and electricity prices have normalized. As shown in the chart above, prices in mining hubs such as Texas, the Southeast, New York, and Ohio, Pennsylvania have returned to manageable levels, although there are some outliers (for example, Georgia, a popular mining state, had higher electricity costs in July 2023).

The average industrial electricity price in the third quarter of 2023 was $86 per megawatt-hour, down 8.5% from the same period last year. U.S. electricity prices typically peak in the third quarter because demand is highest in the summer, requiring air conditioning and other cooling equipment.

Bitcoin hash rate continues to show new seasonal pattern

Anyone who has been following the Bitcoin mining industry has likely noticed a notable pattern that has been repeating itself over the past three years. Bitcoin’s hash rate tends to grow in an almost uncontrollable manner from October to May, but this growth tends to slow down or even fall back in the summer. We have seen this pattern particularly in the third quarter of this year. These seasonal patterns are most likely attributable to U.S. miners significantly reducing production during the summer.

Bitcoin Hash Rate (7D): Monthly Growth in 2023

Source: Hashrate Index

In the first five months of this year, Bitcoin’s 7-day average hash rate grew 56%. Then, in the three summer months of June, July, and August, Bitcoin’s hash rate fell 1.3%. It suddenly rose 12% in September, following a 6% increase so far this month, and finally hit a new all-time high in mid-October.

We are relatively certain that this seasonal pattern is caused by US miners reducing production during the summer, particularly in Texas.

West Texas: Electronics Price Distribution, Q3 2023

Source: ERCOT

The chart below shows the distribution of electricity prices in West Texas during the third quarter of 2023. As you can see, there are relatively many hours with prices above the average revenue per MWh of S19j Pro, which is $92. Typically, Texas-based miners reduce mining activity during these time periods. Based on this data, a West Texas miner operating a fleet of S19j Pro rigs would theoretically be online 80% of the time and reduce mining time 20% when electricity prices exceed the average revenue per MWh of S19j Pro rigs. This miner's average electricity price during its online time is $33 per MWh.

Hosting rates in the U.S. and Canada remain relatively stable

There were no meaningful changes in the hosting rates in the United States and Canada between Q2 2023 and Q3 2023.

According to our index, which extracts data from Luxor Business Data and Hashbranch, the national average for the United States (all hosting sizes) was $0.0790/kWh in Q3 2023, compared to $0.0787/kWh in Q2 2023; the average price in Canada was $0.0725/kWh in Q3 2023, compared to $0.0722/kWh in Q2 2023 (all prices in USD).

Average hosting costs by state in the U.S. (Q3 VS Q2 2023)

Bitcoin mining hosting rates in the United States, source: Hashrate Index, Hashbranch

Average hosting costs by province in Canada (Q3 VS Q2 2023)

Bitcoin mining hosting rates in Canada, source: Hashrate Index, Hashbranch

In the United States, the average discount for hosting large clusters (over 200 ASICs) versus small clusters (1-99 ASICs) was 8% in Q3 2023, compared to 7.5% in Q2 2023; the discount for large hosting agreements relative to medium hosting agreements (100-200 ASICs) was 6.6% in Q3 2023, compared to 5.3% in Q2 2023.

Bitcoin mining stocks rose in Q3 before pulling back

Bitcoin mining stocks got off to a strong start in the third quarter of 2023. They surged in July as Bitcoin surged to $30,000, but fell sharply for the rest of the quarter, erasing all gains in the first month of the third quarter.

Bitcoin Mining Stocks and Bitcoin Year-to-Date Returns

Source: TradingView

The price action is a good reminder that Bitcoin mining stocks, in general, continue to trade high beta relative to the price of Bitcoin. The market often values ​​Bitcoin mining stocks based on Bitcoin's own price action, rather than fundamentals such as fleet efficiency, power prices/power trading strategies, and operational execution. When volume increases, Bitcoin mining stock prices rise higher and faster, and vice versa.

The price action is a good reminder that, typically, Bitcoin mining stocks still trade at high beta to the price of Bitcoin. The market typically evaluates Bitcoin mining stocks based on Bitcoin's price fluctuations, rather than on fundamentals such as mining machine efficiency, power prices/power trading strategies, and operational execution. When the numbers go up, the price of Bitcoin mining stocks goes higher and faster, and vice versa.