Bitcoin miners are scaling down production as sinking cryptocurrency prices and rising energy costs squeeze profits and slam their shares.
Miners, which use powerful computers to create new units of bitcoin and validate transactions on blockchains, have been forced to change tack as tumbling crypto prices threaten to undermine their heavy investment in technology.
The bitcoin hash rate, a measure of the amount of power dedicated to creating new coins, has fallen 4 per cent since the start of the week, according to data from Blockchain.com. The decline suggests digital miners are dedicating fewer computing resources to crack complex puzzles, for which they are rewarded with newly minted bitcoin.
Blockchain.com data also showed the total value of revenues paid to miners fell to its lowest level in nearly a year. Shares in listed miners Marathon Digital and Hut 8 have fallen around 40 per cent over the past month, while Argo Blockchain is down 35 per cent.
“Currently, it’s not fun to be in the mining business”, said Alexander Neumueller, digital assets project lead at the Cambridge Centre for Alternative Finance.
The crypto market has come under strain following months of declines in its biggest coins, shrinking the value of the market from a high of $3.2tn in November to just under $1tn.
Bitcoin has lost more than 50 per cent of its value this year to trade below $21,000, with losses accelerating in recent weeks after the stablecoin terra collapsed and lending platform Celsius has blocked its customers from withdrawing funds.
“There are many miners in the industry who are subject to fluctuations in energy prices. As such, they are feeling pressure from two different directions: high costs coupled with lower revenue per bitcoin generated,” said Charlie Schumacher, a spokesperson for Marathon Digital, one the world’s largest bitcoin miners.
Marathon itself spent more than $200mn on mining-related investments in the first quarter.
The largest operations tend to have fixed energy costs and larger buffers to fall back on, but the downturn leaves smaller companies vulnerable to takeovers and shutdowns. Rising energy costs, related to the war in Ukraine, have hit the profits of many companies.
Didar Bekbaouov, a Kazakh miner and co-founder of mining company Xive, said he was “adjusting to new prices and reality” and had switched off non-profitable mining operations once bitcoin fell below $25,000.
Companies who have turned to banks or markets for capital in the past are now finding it tougher; equity markets have dropped and appetite for fundraisings have weakened, while interest rates have risen.
That may force others to close their operations or abandon plans to buy more computers. “In some cases, due to capital constraints and margin compression, some people have started to cancel orders,” said Schumacher.
“Companies that have been thoughtfully planning for the downturn for some time are likely to weather this period, but many have acted with impulse at the height of the market, and may be stretched and underfunded in the coming months,” said Jaime Leverton, chief executive of Canadian-listed Hut 8.
He said Hut8 had been preparing for a downturn in prices for a year and had built up a chest of 7,078 “unencumbered Bitcoin” it could deploy for acquisitions.
Peter Wall, chief executive of UK-listed Argo Blockchain, anticipates the “first wave” of takeover deals within a year.