According to data from Coin Metrics, the total hash rate of bitcoin has reached a new all-time high, just weeks after the two-month capitulation period for the industry ended.
Against a more challenging environment, miners are put to the test to see if they can maintain profitability. The balance sheet is coming under pressure as the price remains mostly flat while the hash rate and mining difficulty continue to rise.
A widespread miner capitulation began at the beginning of the summer as a deep drop in the price of bitcoin eroded all gains made over the past year. Under pressure, most of the public miners who previously committed to holding their BTC began selling their daily mining bitcoins to cover operating costs amid low margins. Later, some people will even start selling the BTC they kept in cold storage.
Bitcoin mining is a self-regulated market where players aim to find the cheapest energy sources and most favorable jurisdictions available around the world in an effort to minimize costs and maximize profits. As more players join the market, it becomes more difficult to mine bitcoins. As the difficulty increases, miners operating on low margins are forced out of the market. In order to maintain an average of 10 minutes between blocks, the network adjusts the mining difficulty downwards, making bitcoin a bit easier to mine and enabling other miners to join the industry.
Miners are facing a challenging environment as the hash rate is now hitting new highs, and the price of bitcoin is struggling to show signs of continued improvement.
Fred Thiel, CEO of Nasdaq-listed bitcoin miner Marathon Digital Holdings, told Bitcoin Magazine, “Right now I think the bigger issue for miners is that energy costs have gone up, while hash rates have gone up and bitcoin prices down. remains.”
However, according to Thiel, not all players in the industry are hit equally. “The miners who are in good standing, are well capitalized and can operate from a position of strength are going to benefit from this.”
The marathon, Thiel argued, is one of them.
“Our models are built around the fact that we believe that, for the remainder of this year, bitcoin is going to grind to the point where it is now, up and down a bit,” he said. “So, as a company, we plan around [that] landscape.”
When it comes to the high pressure of the global hash rate, Thiel claimed that Marathon is in a good position as its own growth not only dampens the impact of the new ATH, but also contributes to that high reading.
“We are focused on significantly increasing our hash rate from 3EH” [exahash] Up to 23 EH by the middle of next year,” he said. “So we’re really one of the companies contributing to that increase in hash rate.”
The executive expects the hash rate to remain high throughout the year as thousands of orders have been placed at farms around the world, but machines from fellow big industry players have yet to be delivered.
“There were a lot of orders for miners that were publicly disclosed last year and earlier this year, so you assume that people are going to follow through with those deployments.”
The same cannot be said for smaller players though.
“I think the people who aren’t following are small miners, under-capitalised. They have problems funding miners’ purchases, or they are in a situation where their energy costs have turned a little upside down,” Thiel said. Told.
Miners enjoyed a long honeymoon with profits over the past two years as a sharp bull market began for the price of bitcoin. Achieving incredible returns in dollar terms on HODLed coins, miners saw their margins balloon as bitcoin touched new highs. That reality prompted many companies to take on debt to leverage their business and expand operations, a strategy that quickly went south as the price of bitcoin began to fall. Now, with the increasing hash rate, even more pressure is put on these miners.
Geopolitical tensions for industry, White House reports suggest sanctions
The new high in bitcoin’s hash rate comes 18 months after the Chinese government banned bitcoin mining outright, a move that halved the network’s hash rate as local miners shut down their machines and went abroad. began to shift its operations. As a result, the US share of the global bitcoin hash rate rose sharply as the country positioned itself as one of the main destinations for outcast businesses. Kazakhstan and Russia also welcomed the machines.
However, the US, which currently accounts for around 37% of bitcoin’s global hash rate according to data from the Cambridge Center for Alternative Finance, has begun to show some signs of hostility towards the industry itself.
Driven by energy consumption concerns, the White House Office of Science and Technology Policy (OSTP) published a detailed report last week recommending that the Biden administration ensure the development of bitcoin and cryptocurrencies at large in the country, which Responsible for concerns over climate change.
In its more than 30 pages, the document, which is the fruit of Biden’s executive order on digital assets from March 2022, argues that proof-of-work mining could help the energy industry and the climate in certain specific sectors, its net worth. The effect is both negative. The OSTP went on to recommend to the administration and Congress to consider completely limiting or restricting the use of proof of work in the US.
One of the positive acknowledgments made by the report relates to the use of bitcoin mining as a baseload energy demand mechanism.
Thiel told Bitcoin Magazine, “You are providing additional capacity to the grid when it is needed, and you are not really a parasitic load on the grid because you are behind the meter, using energy that would otherwise be wasted.” Will go.” “If you mine bitcoin behind the meter on a renewable site, you are encouraging more renewable production.”
Thiel also highlighted that, given that this is a midterm election year in the US, much of the harsh language in the report may be part of purely political drama.
“A lot of politics happens and some of it is the position of politicians,” he argued. “I personally don’t believe there would be a wholesale ban on proof of work.”
Although not impossible, it seems likely an eventual ban on PoW in the US, given the nature of its government in comparison to China, as well as the extent to which bitcoin mining is integrated into the country’s electricity grid and communities. It is very little.
However, if such an incident does occur, the network will still be prepared to face such an attack. In the same way that mining was banned in China – the country with the highest hashrate share at the time had not destroyed the network – it is well positioned to show similar consequences in a potential US embargo. Despite this, the network can flourish even in the US during the ban, evidenced by the fact that there are still many hashing machines in China; According to the CCAF, the Asian country still accounts for over 20% of the global bitcoin hash rate.