According to information gathered from Bloomberg, the Bitcoin mining industry is under severe pressure as the cryptocurrency recession makes miners unprofitable.
Companies across industries are reducing hardware to slow cash burn. Hash prices have just fallen to record low levels, which shows how little miners currently earn per unit of computing power.
TheMinerMag reports that the median cost of mining (including equipment, energy, and debt) now exceeds its revenue levels, with many public miners operating at a loss.
In response to recent revenue declines, mining companies are slowing down their machines to reduce power usage. “As hash prices have fallen, network hashrate has fallen by almost 8%. This is a result of miners using firmware to underclock their machines to save power,” said Ethan Vera, Luxor Technology's chief operating officer.
Ethan said the economic downturn has forced operators to continue trading used rigs and push beyond the per-kilowatt limit to stay afloat.
Miners move revenue to AI infrastructure
The main pressure point is the April 2024 halving, which will reduce the rewards miners receive from the network. This event occurs every four years, reduces the production of Bitcoins received for block validation, and immediately restructures business mathematics.
Many miners now rely on hybrid setups that include AI and high-performance computing, and this shift drove the stock price higher earlier this year despite a decline in core mining revenue.
Companies currently operating AI data centers are raising billions of dollars to expand those facilities, but most of their revenue still comes from Bitcoin.
Core Scientific drew about 21% of its third-quarter revenue from high-performance computing services, while Terawulf brought in 14% from the same business. IREN Ltd., whose stock price has more than quadrupled this year, generates about 3% of its revenue from high-performance computing, based on estimates from TheMinerMag.
TheMinerMag also reported that the break-even price for the 14 tracking miners was up about 20% from an average of $90,000 per Bitcoin in the third quarter.
The average price of Bitcoin so far in the fourth quarter is $104,000, down from $114,000 in the previous quarter, and Wednesday's trading price was around $92,000, leaving most miners short of profits.
“The investors that have flocked to these companies or have flocked to these companies in recent months are primarily interested in the AI business and very little in the Bitcoin mining business,” said Mike Colonese, managing director of equity research at H.C. Wainwright & Company.
Mike said miners are preparing to power down the machines and replace them with AI data centers over the next few years.
Companies retreat as non-U.S. miners increase production capacity
Public miners are also increasingly decoupling stock price performance from Bitcoin movements, as once dedicated mining facilities switch to AI support.
Core Scientific, Terawulf, IREN, and Cipher Mining have long-term deals with companies like Google and Microsoft to host AI demand that could generate billions of dollars.
“Bitcoin mining is undergoing fundamental changes as many major companies exit the Bitcoin mining space,” said Wolfie Chao, an analyst at TheMinerMag. Wolfie noted that BitFarms announced last month that it plans to wind down its mining operations over the next few years and build a new AI center in its place.
Other miners that once pursued aggressive expansion have also paused announcements about their growth plans. Mr Wolfie said private companies outside the US now account for much of the world's hashrate, while US-listed players are losing ground.
“The companies that will struggle the most are those with small balance sheets and high debt,” Ethan said. “The fourth quarter is going to be pretty tough for many miners, and it's going to be even tougher if you include the GPU business, which is not yet profitable.”
A mining boom in early 2021 propelled the sector into a multibillion-dollar industry as companies bought specialized machinery, built massive data centers and secured vast amounts of power across the country.
Some of the same sites are now being repurposed for AI, while others require an entirely new build.
More than 95% of all Bitcoins that will ever exist have already been mined. Once the final coin arrives around 2140, miners will be completely reliant on transaction fees.
“There is a finite amount of Bitcoin that can be mined,” Wolfie said. “Unless the price of Bitcoin goes up to the moon, AI demand seems like a better bet, because AI is a much bigger pie to begin with.”
