TAPS SIGN
“There is no industry in the world that is more ruthlessly competitive than the bitcoin mining industry.”
From any angle you cut it the bitcoin mining economic landscape is absolutely BRUTAL at the moment. Hashprice is sitting right above an all time low at $0.04/TH/day. Yesterday brought with it yet another new difficulty all time high. Competition for energy resources is as fierce as it has ever been as rack space continues to be tight in the United States and hoards of AI data centers move in to scoop up as much power as possible.
To make matters worse, with current economics it doesn’t really make sense to buy bitcoin mining machines at their current prices. The pay back period on machines is absurd considering where we find ourselves in the market. Adam O from Upstream Data broke it down in a tweet earlier today.
As he says, it probably makes more sense to buy used machines than new machines right now if you are looking to make back your money on a reasonable timeline. The only reasons you would buy new hardware right now is if you believe the price is going to rip in the near term (risky bet), you think hashrate is going to come off the network (risky bet), or if you have obscenely low power costs (unlikely for most).
If you have machines plugged in or are thinking about plugging them in soon you better be running firmware that enables you to run your machines more efficiently to increase margins. With current economics, I would make the argument that it is incredibly irresponsible to be running your machines using stock firmware. Especially if you are operating a miner in the public markets or are a private miner backed by investors. It is a disservice to your shareholders. This is a strategy we have been deploying at Cathedra for years now and it has helped us to survive during these trying times in the mining industry and set us up to successfully complete a strategic merger with Kungsleden at an opportune time.
On that note, this is a trend you can expect to pick up over the next six months; mergers and acquisitions. We wrote earlier this year that M&A activity would pick up after the halving began to eat into the economics of mining businesses and that is exactly what is happening. We decided to move early at Cathedra to get ahead of the curve. Since then Cleanspark announced a merger with GRIID, Riot has initiated an attempted hostile takeover of Bitfarms, Bitfarms has entered an agreement to merge with Stronghold, and Terawulf has signaled that they are open to a merger if a particular deal makes sense. On top of this, Rhodium slipped into bankruptcy last month. As margins continue to be squeezed and companies get more desperate I expect this type of consolidation to accelerate.
All signs are pointing toward more pain in the world of mining in the near term. There is nothing outside of a face ripping rally in the price of bitcoin or some unforeseen event that knocks out a material amount of hashrate that will change this reality. Especially considering the fact that Bitmain announced a new hydro model that will produce 860 TH/s at ~13 J/TH! This will be the highest hashing, most energy efficient machine to ever hit the market by a considerable margin.
Once these machines hit the market (if they haven’t already via Bitmain plugging them in, which could explain new difficulty all time highs despite terrible mining conditions) every other machine on the market is going to suffer economically.
To make matters worse for everyone struggling right now, savvy energy producers are beginning to understand the benefits bitcoin mining can bring to their operational stack. Japanese energy giant TEPCO is reportedly planning to scale up their mining operations after beginning pilots in late 2022. They want to utilize the excess energy produced by renewable sources to mine bitcoin. From what I can tell, they haven’t scaled up significantly yet. However, it is reasonable to believe that they will scale up and other energy producers will take notice. Pushing the industry closer to its inevitable end state; vertical integration via energy producers who have the lowest cost of production.
Thank you for coming to my TED Talk. Keep hashing if you can.
Final thought…
The pets need protecting.