Bitcoin Miner Margins Tighten, Hash Power Goes in Decline

Miner euphoria came to a screeching halt last week as the price of Bitcoin tumbled forcing a 20% decrease in the networks hashrate. In a best-case scenario, most miners are now switching off equipment and await a lull of opportunity as margins have taken a 30% hit on the weekend versus the start of last week. The decline does provide a gleam of information on large mining margins as hash power as well as revenues downtrend.

Along with price, Bitcoin’s mining hashrate has also started to decline, now seeing a downtrend, the first time this year. The drop in Bitcoin’s price is now seemingly affecting even larger miner operations, having fluctuated between 40-60Mn TH/s since August when it peaked at 62Mn TH/s and small retail miners began seeing no returns (Diar, 8 October).

Despite miner revenues surpassing $5Bn this year, two major operations have closed up shop, BTCC Pool, and US-based Giga Watt who filed for bankruptcy last week and left massive debt in its wake. Court documents seen by Coindesk place estimated liabilities between $10-50Mn.

The downtrend does however give some data insight into operating margins. In a best-case scenario, mining on Antminer S9 and wholesale electricity costs, miners require a 30-45% gross profit margin to stay online. From Hashrate peak in August until November when power started to decline, miners earned a healthy 56% average gross margin. This dropped to 39% last week with Bitcoin’s price forcing 20% of miners to switch off equipment.

Bitmain, the largest manufacturer of Bitcoin mining equipment has opened pre-sale for their latest miners slated for shipping at the end of the year. With a limit set on quantity available for purchase, and a whopping 5x the price of their replacement flagship model, it’s unlikely the more efficient equipment to come online en masse any time soon. (see table below).

Despite the new model, the Antminer S15 being capable of brining in more than double the profits, it would still require heavy capital injection by miners who are now biting nails in hope that Bitcoin’s price doesn’t collapse, or have hefty swings as seen last week before they can cover what they’ve already laid out on the limb.

To make matters slightly more troublesome for Bitmain who is seeking to list on the Hong Kong Stock Exchange, the upcoming halving of the bitcoin reward in May 2020 will twist the giants arm in deep price cuts should it wish to move inventory.

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