Energy concerns in North America and Europe, as well as prevailing market conditions, constituted another dismal quarter for Bitcoin (
BTC
) Mining companies in the two continents.
Hashrate’s Q3 mining report highlighted several factors that led to a significant drop in the hashrate and an increase in the cost of producing 1 BTC.
Retail price is a measure used by the industry to determine the market value of a unit of computing power. This is measured by dividing the dollar by the terahash per second per day and is based on changes in mining difficulty and the price of bitcoin.
According to Hashrate Index, Bitcoin’s hash rate received some respite in the middle of the third quarter, as the heat wave during the American summer led to a drop in the hash rate, which corresponds to a slight recovery in the price of BTC.
However, the bitcoin price fell below $20,000 again and the hash rate rose to an all-time high in September, bringing the hash rate closer to all-time lows.
Mining profits have also been threatened by rising energy prices in North America and Europe. The latter has been hit hard by “a combination of ineffective renewable energy policies, underinvestment in oil and gas, decommissioning of nuclear power plants, and Russia’s war with Ukraine,” which has sent energy prices skyrocketing.
Related: Top 3 Reasons Why Bitcoin Hash Rates Are Hitting All-Time Highs
American miners have had to contend with the average cost of industrial electricity, which rose by 25% from $75.20/MWh to $94.30/MWh from July 2021 to July 2022. This has also affected hosting providers who are raising the price of electricity in hosting contracts.
With the hashrate dropping, some mining operators with mid-range hardware struggled to break even. In the past, retail miners either gave up or sold excavators that were no longer profitable.
Liquidating these assets has also become more difficult as the cost of bitcoin mining has declined throughout 2022. Prices for rigs dropped significantly in May and June, but according to the report “stabilised” in August and September, although the picture remains bleak:
“Older generation devices like the S9 experienced a sharp decline in late June as the price of bitcoin fell to $17,500. With the economics of mining, the S9 and similar platforms are only viable in the cheapest power markets.”
Publicly traded mining companies have also come under increasing pressure from higher interest rates and more difficulty in obtaining lines of credit. This has led some companies to turn to fundraising for stocks, the downside of which has weakened shareholders through lower stock prices.
However, these market offerings allow for rapid capital appreciation, which may help fund further expansion and operating expenses in an ongoing bear market.
Miners were also forced to sell bitcoin assets in order to continue production in 2022. However, this number “gradually slowed down” during the third quarter, and government miners sold less bitcoin than their monthly production in August and September for the first time since May. .
The Hashrate Index also warned that the third quarter could be a harbinger of more difficult times for the mining industry, with more distressed asset sales, bankruptcies and miner concessions likely as the year approaches.
