The Bitcoin hash rate, a critical indicator of mining activity, has achieved levels just 1% shy of its peak, according to a Glassnode report released this week.
Bitcoin Hash Rate Record
This milestone is significant, especially given the backdrop of plummeting revenues and escalating energy costs. The hash rate, which measures the total computational power dedicated to mining Bitcoin, reflects the overall health and competition within the mining ecosystem.
The mining sector is grappling with a dual challenge: heightened mining difficulty and diminishing revenue from transaction fees.
As the hash rate climbs, so does the complexity of solving the cryptographic puzzles required to earn Bitcoin block rewards.
This increased difficulty inevitably drives up production costs, placing additional pressure on miners’ profit margins.
Furthermore, the demand for high-fee transactions—such as those involving Runes tokens and NFT-like Ordinals—has cooled, exacerbating the squeeze on miners’ profitability.
Despite these hurdles, the commitment to investing in new ASIC (Application-Specific Integrated Circuit) hardware remains strong.
This investment is partly driven by the need to stay competitive in a rapidly evolving environment where older machines are becoming obsolete.
One of the driving factors behind this trend is the improved energy efficiency of modern ASIC equipment. Advances in technology have led to a significant enhancement in energy efficiency, with dedicated Bitcoin mining hardware seeing its efficiency more than double between 2018 and 2023.
This leap in efficiency has played a crucial role in helping miners manage rising electricity costs and offset the challenges posed by increasing mining difficulty.
Illia Otychenko, lead analyst at crypto exchange CEX.IO, commented on this development, stating, “The energy efficiency of dedicated Bitcoin mining hardware has more than doubled from 2018 to 2023, significantly reducing the energy consumption per coin produced.”
This technological advancement allows miners to navigate the rising operational costs while maintaining their profitability even in adverse market conditions.
While Bitcoin’s price remains relatively strong, transaction fee pressure has eased, further tightening the financial squeeze on miners.
With transaction fee revenue now a mere fraction of what it once was, miners are increasingly reliant on block subsidies to sustain their operations.
This shift highlights the evolving nature of revenue streams in the mining sector and the need for miners to adapt to changing market dynamics.
Interestingly, many miners are altering their strategies in response to the revenue squeeze. Historically, miners sold the majority of their mined Bitcoin to cover operational expenses.
However, recent reports indicate a shift towards retaining a portion of their mined supply in treasury reserves.
Marathon Digital, for instance, announced in July its adoption of a “full HODL” strategy, signaling that it would no longer sell its mined BTC. Instead, the company has been actively purchasing more Bitcoin from the market.
Jeffrey Hu, head of investment research at HashKey Capital, views this strategic shift as a sign of confidence in Bitcoin’s long-term value.
“Miners retaining a portion of their mined supply suggests they are banking on future price appreciation,” Hu told Decrypt. “It’s a sign of confidence and could reduce selling pressure in the market, potentially supporting prices.”
However, Hu also cautions that this approach carries risks, particularly if miners are forced to sell reserves during market downturns, which could intensify sell pressure and impact market stability.
Ryan Lee, chief analyst at Bitget Research, attributes part of the rising hash rate to the reintroduction of older mining rigs.
With Bitcoin’s price gains over the past year making previously unprofitable hardware viable again, older machines are being brought back into operation. This, combined with new investments in more efficient machines, is driving the total hash rate higher.
Lee also points to recent regulatory support in regions like Russia and positive signals from figures such as former President Donald Trump, who has expressed support for Bitcoin and the crypto industry amid his latest campaign for the White House. These developments have contributed to the hash rate’s growth by reducing market uncertainty.
As the mining industry continues to evolve, experts agree that exploring alternative revenue streams is crucial for long-term profitability.
During the Bitcoin 2024 conference in July, there was a sense that companies are experiencing an “identity crisis,” but this challenge may ultimately lead to beneficial changes in the industry.
Doug Petkanics, co-founder and CEO of Livepeer, suggests that Bitcoin miners are well-positioned to diversify into AI computing, which requires substantial computational power.
“The demand for AI compute power is growing exponentially. With their existing energy and cooling infrastructure, miners could tap into this market by adding GPUs and providing a new revenue stream,” Petkanics explained.
Diversification could be a key strategy for surviving the increasingly competitive mining landscape. Companies like Core Scientific and Bitdeer are already providing computing power for AI needs to bolster their Bitcoin business.
Otychenko predicts further consolidation in the industry, with capital-rich miners outlasting smaller operations. CleanSpark’s acquisition of GRIID for $155 million in June, for example, exemplifies this trend, enhancing its hosting capacity as part of its growth strategy.
Similarly, Bitfarms recently acquired Stronghold Digital Mining, while Riot Platforms acquired a 19% stake in Bitfarms to influence its direction.
Companies like Marathon Digital also see future acquisition opportunities to secure low-cost energy and scalable infrastructure.
“We may see further mergers and acquisitions as larger miners absorb struggling competitors to expand their market share,” Otychenko notes. For those unable to adapt, the rising operational costs may become unsustainable, leading to a shake-up in the industry.
Hu also highlights the potential for new financing products designed to protect miners from market volatility and innovative ways for mining pools to generate additional revenue, such as merged mining for new layer-2 solutions on Bitcoin.
“Mining may also expand into regions like the Middle East, where natural resources and a rapidly growing crypto business present new opportunities,” he adds.
Despite these potential avenues for growth, miners’ profitability remains heavily reliant on block rewards, which currently account for over 90% of their revenue.
“Transaction fees only become significant during fee spikes, as we saw with Runes and Ordinals, but such events are temporary,” Otychenko said. “Block rewards are still the main revenue driver.”
As the industry navigates these challenges, Lee anticipates that Bitcoin’s price could surge during the next bull cycle, potentially reaching $150,000.
This could attract more retail participation in mining, as smaller players enter the market by purchasing older, more affordable machines.
“While larger miners may shift toward asset management,” Lee said, “retail miners could generate consistent cash flow if Bitcoin’s price continues to rise.”
