Bitcoin mining revenue gauge declines to the lowest in two years

A closely-watched measure of Bitcoin mining revenue has dropped to the lowest in about two years as competition increases while prices drop and energy costs soar.

The hash price index, which indicates the mining revenue value per unit of computing power, dropped to around 7.7 cents for each terahash, the lowest since September 2020, according to data from crypto-mining services company Luxor Technologies. It last neared that level during the crypto market crash in June, when some miners had to sell coins held as investments to cover costs.

The index uses multiple factors, such as the price of Bitcoin and transaction fees, to calculate the miners’ total revenue.

Bitcoin miners use powerful computers to compete to be the first one that comes up with a solution to validate transactions encrypted by the Bitcoin network and win a reward in the form of newly minted tokens. However, such rewards are limited and the more competition there is on the network, the less rewards each miner will receive.

Mining difficulty, a measure of Bitcoin miners’ computing power for the entire network, is flirting with a record high after its latest bi-weekly adjustment last week. While mining companies raised billions of dollars in building out mining infrastructure and deploying rigs during the bull run last year, the computing power only started ramping up this year.

“With all costs taken into account, only the miners with extremely low electricity prices are running at a profit right now.” said Jarand Mellerud, mining analyst at digital asset research firm Arcane Crypto.

This year’s extended slide in Bitcoin’s price and persistent high energy prices have also eroded the formally industry profit margins, which were once on par with luxury goods makers. The largest cryptocurrency by market value has dropped almost 60 per cent this year to around $19,000.

“The last time when we had this level, energy price was significantly lower across the board,” said Nick Hansen, chief executive at Luxor. “Depending on where you are at, your energy price is at at least 30 per cent higher, in some places almost double right now.”

The Russia-Ukraine crisis and a record heat wave in crypto-mining hub Texas have sent energy prices soaring. Under such conditions, only the miners with their own generations or those that purchased power at a lower rate previously are best positioned to weather the high prices, Hansen said.

Miners may be able to improve margins as temperatures cool down, said Bill Cannon, head of portfolio management at Valkyrie Investments. Public mining companies are meeting their computing power growth target by deploying more machines and they have been resistant in previous cycles, he said.

Even so, shares of mining companies have been hit hard this year. Marathon Digital Holdings is down 65 per cent, Riot Blockchains is off 71 per cent and Core Scientific has slumped 81 per cent.