Bitcoin Miners Face Rising Production Costs and Increased Competition According to CoinShares Report

Bitcoin Miners Face Rising Production Costs and Increased Competition According to CoinShares Report

According to a recent report from CoinShares analysts the Bitcoin mining industry is grappling with a multitude of challenges as production costs reach new heights and competition intensifies. The CoinShares Q3 Mining Report reveals that the average cost to produce one Bitcoin has surged to a staggering $49,500 driven by escalating mining difficulty and fluctuating hash prices.

Rising Production Costs for Bitcoin Miners

The report highlights that one of the primary obstacles miners face is the soaring cost of production. As mining difficulty continues to rise and hash prices decline the average production cost for one Bitcoin has climbed from $47,200 in the first quarter to $49,500 in Q3. This figure solely accounts for cash costs and when considering depreciation and stock-based compensation the average cost estimate rises dramatically to $96,100 per Bitcoin.

In a bid to mitigate these rising costs miners are increasingly adopting energy-efficient strategies including curtailment and the utilization of alternative energy sources. However many miners find it increasingly challenging to maintain profitability under these conditions.

Challenges in Securing Funding

Another significant challenge for miners is the aftermath of the FTX collapse coupled with rising interest rates which have made securing funding more difficult. As a result many mining companies are resorting to alternative funding sources often through share issuance. While this method provides necessary capital it can dilute shareholder value which has frustrated investors. CoinShares analysts James Butterfill and Max Shannon noted this issue in their report stating that while alternative funding serves as a useful option it often comes with significant drawbacks for shareholders.

Competition and Future Projections

The CoinShares report forecasts that Bitcoin's hashrate will rise to 765 EH/s by the end of 2024 up from the current 684 EH/s. Furthermore analysts predict that it could potentially reach a theoretical upper limit by 2050 thereby reducing carbon emissions from flared gas by 63%. However hash prices are expected to continue their downward trend until the next halving event in 2028. According to the report hash prices which measure potential miner profitability have hit new lows this year and are expected to remain range-bound between $50 and $32 per PH per day leading up to the halving.

As the industry becomes increasingly competitive miners with low costs and efficient operations will hold significant advantages. The report identified Cormint as the lowest cost Bitcoin producer with production costs at $16,700 per Bitcoin followed by TeraWulf at $18,700 thanks to fixed-rate power contracts and effective energy management strategies. In contrast Riot faced the highest production costs at $65,900 per Bitcoin despite earning $13.9 million in power curtailment credits in Q2 2024 which helped offset net power expenses.

Strategies for Survival Amid Challenges

The CoinShares report also explores how miners are responding to current challenges. Some miners such as Riot Cleanpark and Bitfarms are adopting a dual approach of capital efficiency and diversification by prioritizing efficient growth and focusing on acquiring pre-built assets rather than engaging in new constructions. Others like Core Scientific are exploring opportunities in artificial intelligence infrastructure to stabilize revenues and decrease reliance on the volatile Bitcoin price.

Analysts conclude that the future of Bitcoin mining hinges on effective cost management and capital allocation. Companies with robust strategies in place will be better equipped to navigate the increasing mining difficulty and market volatility. The report emphasized that publicly traded mining companies must focus on cutting costs and maintaining profitability to achieve several objectives including creating value for shareholders reducing reliance on equity capital markets and sustaining capital expenditure efforts for future growth.