Cryptocurrency prices continue to fall, Bitcoin miners' income has dropped by more than half from its peak

On-chain data shows that Bitcoin miners’ revenue has now fallen to a six-month low as the cryptocurrency’s price continues to struggle recently.

Mining revenue dropped by about 68%

Forbes data shows that Bitcoin mining revenue potential (defined as hash price) has fallen by about 68% from its 2021 peak and 58% from its 2021 average.

(Hashprice is a Bitcoin mining metric that measures the revenue potential of a unit of Bitcoin mining computing power, known as hash rate.)

Two things influence the price of Bitcoin’s hashrate: the actual price of Bitcoin and Bitcoin’s mining difficulty, which affects the likelihood of solving a block and receiving a reward of 6.25 BTC (about $187,500). For context, at Bitcoin’s all-time high in November 2021, the block reward would have generated approximately $430,000.

Bitcoin's mining difficulty is adjusted up or down approximately every two weeks, making it easier or harder to mine Bitcoin based on network competition. If miners produce blocks too quickly in the first two weeks, the difficulty will increase, and conversely, if miners produce blocks too slowly, the difficulty will decrease. This ensures that miners propagate blocks close to the 10-minute average that the Bitcoin code targets.

In the past year, 18 of the 26 Bitcoin mining difficulty adjustments have increased difficulty, and only 4 have decreased difficulty. When difficulty increases, mining Bitcoin becomes more energy intensive, so the hash price drops. When the price of Bitcoin drops, the hash price also drops, and right now, the price of Bitcoin is dropping while the difficulty is at an all-time high.

During 2021, Bitcoin miners have enjoyed some super-high profits. There are two main reasons behind their amazing earnings during this period. The first is the high Bitcoin price. During the year, the cryptocurrency reached two different all-time highs and has generally been on an upward trend, with the exception of a few segments. Because of this, any income earned by Bitcoin miners also appreciated and kept them highly profitable.

Another reason is the hashrate crash due to China's crackdown on mining. "Hashrate" is a measure of the computing power currently connected to the BTC network. With this metric, it is possible to tell how much competition miners are facing right now. The higher the Bitcoin hashrate value, the more competition miners face and the less profit they make. China cracked down on mining and the hashrate crashed in June. In the subsequent period of low hashrate, miners outside of China began to enjoy greater profits as the difficulty of mining Bitcoin dropped significantly.

However, a few months later, the indicator fully recovered from the crash, and at the same time, the price of BTC has begun to struggle and the overall trend is downward. These two factors combined mean that the profits of these miners have been greatly reduced. If the hash rate continues to rise and the price of Bitcoin does not recover significantly, then the profits of mining will continue to decline in the near term.

Bitcoin mining stocks scale back expansion plans

As profitability in the bitcoin mining industry declines, most bitcoin mining stocks have fallen by 60% or more in the current market crash. As shown in the chart below, prices of leading mining companies such as Marathon, Riot, Bitfarms, Hut 8, Hive, Core Scientific, Argo Blockchain, Iris Energy, DMG Blockchain and Cleanspark have fallen.

Many large public companies are still mining profitably, and some will continue to do so even if the hash price is cut in half. Still, some companies like Bitfarms and Core Scientific have withdrawn their 2022 hash rate estimates, a prudent step given the dramatic changes in the market. It would not be surprising to see other miners do the same in the coming weeks and months.

Earlier, Canada-based Bitcoin miner Bitfarms reported net income of $5 million in the first quarter of 2022, down about 50% from the previous quarter. The company also said in an earnings call on Monday that it would scale back expansion plans for the rest of the year due to logistics and supply chain issues related to rising natural gas prices.

President and COO Jeff Murphy sees the current market challenges as an opportunity for the company to "increase relative market share gains," as capital supply chain and other constraints could slow the network's growth.

Bitfarms' total revenue fell 33.3% compared to the previous quarter, totaling $40 million. Mining gross margin fell to 76% compared to 84% in the fourth quarter of 2021. The company's chief financial officer noted that Biftarms is "acting cautiously" given the current environment.

More sophisticated miners aren’t worried yet

In fact, aside from the big mining companies, the bear market could be tough on miners who are overleveraged and have bought more machines in 2021 than they could plug in during last year’s market frenzy. It will also be brutal for miners with higher operating costs.

According to a report on breakeven costs for public miners, the simple average of the breakeven price among the 10 miners surveyed was 13 cents, the median was 11 cents, and the hash rate weighted average was 10 cents. According to the report, the average miner is treading water. But many public and industrial miners have low production costs, and some more established players are not worried yet. For example, miners paying $0.06/kWh for electricity are still making a healthy profit, although the profits are nowhere near as high as last year's bull run.

With this in mind, those who promised big in the bull market but can't deliver in the bear market will be eaten up. As we enter the bottom of the bear market, those companies with strong execution will thrive and have the opportunity to buy cheap assets (rigs, farms, etc.).

Analysts point out that a drop in crypto prices will lead to a reduction in mining, but this may happen over a longer period of time. At present, despite the price drop, no abnormal drop in hash rate has been seen. In another week, it may be seen whether miners have been shutting down some of their mining machines, which indicates that their profit margins are low. At the same time, analysts also remind that if there is a more severe bear market, just because a mining company is large, it does not guarantee that they can survive the bear market.