Last year was a harvest time for cryptocurrency miners. Now they are under attack from all sides. Cryptocurrency prices are falling. Miners’ electricity prices are on the rise. Nobody wants to buy their equipment.
This is a dramatic change compared to 2021, when crypto prices soared and many mining companies bought mining machines, mostly financed by debt. However, as cryptocurrency prices have fallen this year, major cryptocurrency projects and companies have disappeared. This reduced the profit that miners could make by collecting digital coins and short selling their equipment.
Meanwhile, the price of electricity needed to power the miners’ powerful computers is rising. Russia’s war with Ukraine has strained global energy supplies, while extreme heat waves have increased demand for energy from households that need to cool their homes. Shares of major crypto miners Marathon Digital Holdings Inc., Riot Blockchain Inc. and Core Scientific Inc. all are down 55% or more this year.
Bitcoin miners build and operate powerful computers that process bitcoin transactions. These computers generate random numbers in hopes of finding the right combination to unlock the formula; the first to do so will receive the newly created bitcoins. This makes Bitcoin mining most profitable when the value of the cryptocurrency increases. During Bitcoin’s 2021 peak, miners were earning over $60 million per day. Now that number is about $19 million a day.
Bitcoin rose to nearly $70,000 last year. The Federal Reserve began raising interest rates this year, driving many investors away from assets like cryptocurrencies. Bitcoin traded around $19,000 last week. Additionally, many one-time crypto lenders have collapsed, leaving mining companies with few funding options. Crypto enthusiasts used the machine at home to mine Bitcoin. Today, Bitcoin mining companies use a large number of high-performance and noisy computers to get the job done.
As the value of Bitcoin skyrocketed last year, Bitcoin mining machines became a hot commodity. Andy Long, CEO of Bitcoin miner White Rock Management, said at the time that the rush to load up on mining rigs then was akin to “buying spades in the middle of the gold rush,”. According to bitcoin mining data analysis firm Luxor Technology Corp. data, the cost of the most efficient bitcoin miners is now one third of their December cost.
Miners who borrowed money to buy equipment last year were hit particularly hard by the sharp decline. As the price of bitcoin fell, these miners were forced to sell some of their mining equipment and bitcoins to avoid running out of cash. But some people are willing to buy machines on the secondary market, making the price of machines lower. Some analysts worry that there could be more forced bitcoin sales in the future, especially as miners also struggle with shocks in energy prices.
The average price of electricity for Texas’ largest customer rose to 7.52 cents per kilowatt-hour in June, up 41% from a year earlier. Their prices in Germany this month were 525 euros per megawatt hour, roughly the same dollar figure and almost 140% higher than in December. A report released by the White House last week warned that crypto miners could strain the Texas power grid.
Two facilities in Georgia used by Bitcoin mining company Compass Mining LLC were recently forced to close after their local utility raised electricity prices by 50 percent. Frankfurt-based mining firm Northern Data and other bitcoin miners said they only run mining machines during hours when demand on the power system is low. According to Arcane Research, public miners were forced to offload around 240,000 bitcoins at sell-off prices in May and June, and the pressure has since eased.
Miners of the second largest cryptocurrency, ether, are in for a worse winter than their bitcoin counterparts. Currently, the crypto platform Ethereum uses a model similar to Bitcoin that rewards the fastest miners with new tokens. A software upgrade called Merge will change that. After an update planned for this month, the Ethereum network will no longer need miners and their machines.
There is already less money to be made. According to cryptocurrency research firm CoinMetrics, Ether miners earn average revenues of around $ 20 million per day, down from $ 50 million in 2021. Ether miners can continue to migrate to platforms that require miners, but that may not succeed.
