With Bitcoin’s price down 20% since news of FTX’s financial troubles broke on Nov. 6, Bitcoin miners are now earning less revenue than ever.
This hit to bitcoin price is eroding margins as conditions for miners deteriorate in a year impacted by crypto’s bear market and rising energy costs, and has the potential to bankrupt companies that have survived so far to drive.
Broader Context: The FTX fiasco is shaking every corner of the cryptosphere
When news of FTX’s demise broke, the ensuing bank run on the exchange’s accounts triggered a market meltdown. Bitcoin cratered to $15,500 and the broader crypto market crashed with it. A variety of projects and companies have been directly involved in FTX and its sister company Alameda, either by holding funds on the exchange, investing in the companies, or lending money to them. Notable blue chip crypto firms with funds tied up in Sam Bankman-Fried’s doomed empire include Galaxy Digital, Coinbase, Coinshares and Genesis Trading.
But bitcoin miners were rocked by the fallout from FTX’s situation. The market sell-off has weighed on mining stocks, even allowing for a small rally after bitcoin recovered to the current range of $16,500 from last week’s $15,500 low.
Additionally, the hash price — a measure of the revenue potential of a unit of computing power in bitcoin mining — hit an all-time low last week.
The chart below shows the hash price of bitcoin in dollars per terahash (TH) per day (a top machine like the S19j Pro produces 100 TH per second).
At current hash price levels, a miner running an industry standard machine like the Antminer S19j Pro is only making $6 in revenue per day per machine, compared to $36 per day at this time last year.
Outlook and Impact: Bitcoin mining margins are being crushed in the recent market crisis
As the hash price has made new lows, bitcoin mining margins have essentially evaporated for many run-of-the-mill players.
At current levels, miners with hosting and/or power contracts at 8 cents/kWh using industry standard S19j Pro bitcoin mining machines are effectively breaking even. Miners with performance rates above this level are underwater.
The table below shows breakeven hash price levels for different bitcoin mining machines at different performance rates. It is colour-coded: green represents profitability, yellow represents marginal profitability, orange represents breakeven and red represents unprofitability.
Most public miners have replaced their older machines (like the S17) with newer devices like the S19j Pro this year. A select few, including Marathon, Riot, and Bitfarms, have started using the S19 XP, the most powerful and efficient miner to date; However, this model represents only a fraction of the deployed capacity of these miners.
Even with electricity costs of 5-6 cents/kWh, miners work up a sweat with the S19j Pro in the current market environment.
Decision Points: FTX contagion could trigger new Bitcoin miner bankruptcies
Bitcoin mining margins are completely compressed and it is becoming increasingly difficult to raise capital. For publicly traded bitcoin miners, the current environment puts them in situations ranging from uncomfortable to potentially dire.
Even before Bitcoin’s recent price drop, some of these miners were showing signs of trouble. Core Scientific, for example, hinted at a possible bankruptcy in an SEC filing in October. Core stock is down 98% since it began trading in April of last year.
Other miners are scrambling to restructure their debt, such as Stronghold Digital Mining, which returned 26,200 Bitcoin mining machines to lender NYDIG to pay down $67.4 million in debt.
As Q3 earnings reports continue to trickle in, we will get a better idea of which miners are best placed to weather the current market conditions. Those with solid balance sheets and low levels of debt, like Hut 8 and Riot, will be able to keep up with the debt and remain liquid. As we saw at Core Scientific, heavily leveraged miners could find themselves in hot water if Bitcoin’s price stays low or declines.
Mining stocks have been hit hard this year, but that doesn’t mean they can’t continue lower.