Bitcoin mining companies continue to struggle to survive the ongoing bear market. Dreams of surpassing bitcoin as a public mining company are long gone. Bankruptcies and lawsuits regularly make the headlines. And even Wall Street analysts who were once optimistic about investment opportunities in bitcoin mining are now saying they’re “unplugging” until the market improves. But how bad is the current bear market really?
It’s always darkest before dawn, as the saying goes. And compared to previous bear markets, the mining industry looks much closer to the end of a turbulent market phase than the beginning of one. This article explores a slew of current and previous bear market datasets to contextualize the state of the industry and how the mining sector is doing. From hardware lifecycles and miner balances, to hash rate growth and hash price declines, all of this data tells a unique story about one of Bitcoin’s most important economic sectors.
Mining revenues evaporate
When the price of bitcoin drops, it’s no surprise that dollar-denominated mining revenues also drop. But he has – a lot. Around 900 BTC are still mined every day and will be until the next halving in 2024. But the fiat price of those bitcoins has fallen this year, meaning miners have far fewer dollars for spending like mining. electricity, maintenance and loan servicing.
As the chart below shows, in November the entire bitcoin mining industry earned less than $500 million from processing transactions and issuing new coins. The bar graph below shows this monthly income compared to the last five years. November’s mining earnings mark a two-year low for monthly earnings.
Last month marked a two-year low for the revenue of the Bitcoin mining company.
Potential reversal of the hash rate uptrend
Comparing the current bear market with the previous one in 2018 offers some interesting insights into how the mining industry has changed and how it has stayed the same. One such comparison is hash rate growth during downward price trends. It is not uncommon to see the hash rate increase during bear markets. The annotated line chart below shows normalized hash rate growth during the bear markets of 2018 and 2022, from bitcoin price peak to historical (or current) lows of declines.
So far in this bear market, the Bitcoin hash rate has only grown.
But one thing that is obviously missing from the chart above is a correction in hash rate growth during the last period of the bearish phase. In 2018, for example, the growth trend clearly reversed course and fell as the market finally found a low price for bitcoin. But in today’s market, the hash rate has only grown. Perhaps a slight drop in the hash rate through the end of November signals a change in trend, but the question remains open.
Collapse of public mining companies
Perhaps the most brutal bitcoin mining chart of all shows the withdrawals of publicly traded mining companies this year. It’s no secret that the past year has been brutal for bitcoin, other cryptocurrencies, and the global economy in general. But mining companies in particular have been under attack. More than half of these companies have seen their stock prices fall by more than 90% since January. Only two – CleanSpark and Riot Blockchain – did not drop more than 80%.
Mining companies in general are often considered a high beta investment in bitcoin, which means that when bitcoin goes up, mining stock prices go up more. But this market dynamic goes both ways, and when bitcoin drops, the drop in mining stocks is even more brutal. The bar chart below shows the slaughter these stocks have endured.
Bitcoin mining stocks have been slaughtered.
The Rise and Fall of Bitcoin Mining’s AK-47
An underrated feature of the current bitcoin bear market is the precipitous drop in hash rate contributed by Bitmain’s Antminer S9 machines. This model of mining machine is sometimes referred to as the “AK-47” of mining due to its durability and reliable performance. And at some point in the bear market of 2018, the S9 was king. Nearly 80% of Bitcoin’s total hash rate came from this Bitmain pattern during the peak of the previous bear market.
But the current bear market tells a completely different story. Thanks to new, more efficient hardware and a squeeze on mining profit margins, the S9 hash rate percentage fell below 2% in early November. The annotated line graph below shows the rise and fall of this machine.
The Antminer S9 had a remarkable drop.
Miner Balance retraces its sale
The past few months have been disastrous for the “crypto” industry, as exchange wars, insolvent custodians, and other forms of financial contagion have swept the market. Many bitcoin investors like to assume that their segment of the industry is mostly isolated from the chaos of the rest of “crypto,” but that’s usually wrong. In the case of miners, who are notoriously bad at timing the market, some panic was evident as address balances and miner outflows seemed to fall and rise respectively.
But this activity was short-lived. The line chart below shows that miner address balances have almost fully retraced their decline from late September to October. In short, miners appear to be back in HODL mode, impervious to exogenous market events. It is unclear whether the bear market is over or not. But miners seem to be accumulating more than they are selling.
Miners seem to be back in HODL mode.
Hash Price Drop Today Vs. 2018
Hash price is one of the most popular economic metrics for miners to track, though few people outside of mining understand it. In short, this metric represents the dollar-denominated revenue expected to be earned per marginal unit of hash rate. And like everything else in the bear market, the price of hash has dropped significantly. But its decline is not unusual, especially when compared to the drop in the price of hash in 2018.
The chart below shows the 2018 and 2022 normalized hash price declines. Readers will notice the fairly similar slope and size of the declines. 2018 was slightly steeper. 2022 so far has been shallower but longer. But both were and still are brutal to fledgling mining operations.
This 2022 hash price drop was less deep but longer than its 2018 equivalent.
The next phase of mining
Boom and bust cycles are a natural series of events for any well-functioning market. The bitcoin mining sector is no exception. Over the past year, the mining sector has seen its weakest and unprepared operators eliminated as bull market excesses are factored in. Now, in the depths of a bearish period, the true builders can continue to expand their operations and build a solid foundation for the next phase of euphoric upside.
This is a guest post by Zack Voell. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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