Mining Economics Strain as Bitcoin Prices Fall

Bitcoin miners are experiencing significant economic pressure as the network's hashrate reached a record 1.16 zettahashes per second in October 2023, according to a report by The Miner Mag. This surge in competition comes at a time when Bitcoin's price has dropped towards $81,000 entering November.

Hash prices, which reflect miner revenue per unit of computing power, fell below $35 per hash, a stark decline from the $45 per petahash per second median total hash price reported by public mining companies.

The report indicates that many operators are nearing breakeven levels, with payback periods for mining rigs stretching beyond 1,200 days. As a result, rising financing costs are compounding the strain on the sector.

This downturn follows a relatively stable third quarter, during which the hash price averaged about $55 per petahash per second, thanks to Bitcoin trading near $110,000. The combination of increased competition and falling Bitcoin prices has pushed mining profitability to the lowest levels recorded.

Additionally, there has been a notable increase in miner borrowing, spurred by a wave of near-zero-coupon convertible bonds issued in the previous quarter. While miners are pivoting toward artificial intelligence and high-power computing, the revenue generated from these ventures remains insufficient to counterbalance the sharp decline in Bitcoin mining income.

Despite this challenging landscape, the top 10 publicly traded miners saw stock price increases over the past 24 hours. Companies such as CleanSpark, Cipher Mining, and IREN experienced double-digit gains recently, following a note from J.P.

Morgan raising price targets for these stocks. J.P. Morgan pointed out that Cipher's share price had dropped approximately 45% from its peak, making it a more attractive entry point, and highlighted that Cipher is well-positioned to secure additional high-power computing deals.

Meanwhile, IREN signed a substantial five-year contract worth $9.7 billion with Microsoft, granting the tech giant access to Nvidia GB300 GPUs hosted in IREN's data centers. However, J.P. Morgan revised its estimates downward for Marathon Digital and Riot, attributing this to lower Bitcoin prices and increased share counts affecting their substantial coin inventories.

The rebound in miner stocks coincided with a slight increase in Bitcoin's price, which rose about 2% over the past 24 hours, trading around $89,000, according to CoinGecko data.