Bitcoin Mining Profitability Hits An All Time Low, But Here’s Who Is Still Thriving

Bitcoin Mining Profitability Hits An All Time Low, But Here’s Who Is Still Thriving
Bitcoin Mining Profitability Hits An All Time Low, But Here’s Who Is Still Thriving

Bitcoin mining is started to get a lot less lucrative

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Key Background

The halving—a quadrennial event that reduces the number of bitcoin miners generated in each block—dropped Bitcoin’s block subsidy from 6.25 BTC to 3.125 BTC. Miners now earn $203,000 per block from the issuance of new bitcoins versus $406,000 at current prices.

In the immediate aftermath of the halving, miners enjoyed a temporary and meteoric boost to their revenue from transaction fees (miners collect revenue from newly minted BTC and transaction fees from users). A new token standard on Bitcoin called Runes resulted in an all-time high of $78.3 million in transaction fees on April 20, 2024—an incredible sum when you consider that miners earned $797.70 million from fees in all of 2023.

This resulted in a short-lived spike in Bitcoin mining profitability. Hashprice—a measure that miners use to determine the earnings potential of their operations—rose to $185/PH/Day the day after the halving, but Runes activity and transaction fees have since dwindled, and hashprice hit an all-time low of $49/ PH/Day on April 29, 2024.

Hashprice is a metric miners use to express the revenue they can generate daily on the Bitcoin network from a unit of computing power. As of April 25, hashprice was $57/PH/Day, meaning that a miner with 10 industry-standard computers like the S19j Pro could generate $57 per day.

Colin Harper

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Public Bitcoin Miners Are Starting To Sweat

Now, bitcoin miners face the harsh economic realities of the current 3.125 BTC block subsidy.

One can get a general idea of ​​how much the event has compressed margins by looking at the operating costs of public mining companies and subtracting these costs from hashprice. Bitcoin miners use a metric called “hashcost” to express direct operating costs, and they derive the metric by looking at the energy efficiency of their mining computers and their power cost. We can then use hashcost, hashprice, and a mining company’s current active hashrate (a measure of total computing power) to derive implied daily cost and profit.

The charts below show the implied daily profit and cost for proprietary operations of the largest public bitcoin miners by market cap in gross amounts and percentages.

CleanSpark, Riot And Core Scientific Have The Largest Gross-Mining Margins Post-Halving

CleanSpark, Riot And Core Scientific Have The Largest Gross-Mining Margins Post-Halving

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Marathon, Hive And Hut8 Have The Smallest Percentage Margins Among Major Miners

Marathon, Hive And Hut8 Have The Smallest Percentage Margins Among Major Miners

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The companies with the largest margins are Cleanspark, Riot, Core Scientific, Terawulf, and Cipher, which have more efficient mining fleets and lower power costs. It should not be surprising that these firms have performed the best among publicly traded mining companies so far this year, even though Cleanspark has the only ticker with positive returns.

Cleanspark Is The Only Miner With A Positive 2024 So Far

Cleanspark Is The Only Miner With A Positive 2024 So Far

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But some of these numbers can be deceiving. For instance, Core Scientific’s fat margins do not necessarily show the entire picture. The company, which has the second largest proprietary hashrate among all bitcoin miners, declared Chapter 11 bankruptcy in December 2022. It emerged from these proceedings and began trading on the Nasdaq again in January with $864 million in debt on its balance sheet, the largest of any competitor. It will take time for the company to pay it down, and in the interim, it will not be able to keep mined bitcoins on its balance sheet, which could limit its longer-term upside potential should bitcoin shake free from the $60,000 to $70,000 range .

Looking at profit margin on a percentage basis, the situation becomes clearer: a handful of miners are teetering on the edge of unprofitability. Hive is close to operating at a loss, and Hut8’s margins are down to 10%. Both companies had operating profits of at least 50% before the halving, and they are the worst-performing stocks this year. Hive’s margins are so thin because, in 2023, the company had an implied power cost of $72/MWh, the highest among the public miners referenced in this article, and Hut 8 has the second least efficient power fleet in the bunch.

Marathon’s appearance on this list may be surprising given that it has the largest market capitalization of any publicly traded miner, but there is some important context to remember. For one, Marathon has the largest proprietary hashrate of any public miner and the largest cash and bitcoin position, so investors price both of these considerations accordingly.

Investors are also likely rewarding Marathon for its recent facility acquisitions. In 2024, Marathon began transitioning from a horizontal, “asset light” operating structure where it bought mining rigs and paid hosting providers to operate them. This approach can lead to quick expansion and deployment, but it also limits a company’s power to control key cost variables such as electricity. Now, Marathon is transitioning towards a vertical structure and deploying capital to acquire mining sites. The firm has already closed on three mining sites in 2024, spending $265.9 million. Two of these, the Kearney, Nebraska and Granbury, Texas facilities, were formerly managed by Hut 8 after it inherited a management contract with its merger with US Bitcoin, but Marathon purchased them from the sites’ owner, Generate Capital, and plans to use all of the capacity for its own operations; Marathon also recently purchased a facility from Applied Digital. It would be fair to expect Marathon’s margins to widen due to these purchases, as outright ownership will lower the company’s operating costs.

One last thing to note is that the largest public miners raised a collective $2.4 billion from equity sales in 2023. Some stowed away portions of these sales and built up sizable treasuries that will come in handy should their profit margins slip to dangerous levels. Hut 8, for example, has one of the lower profit margins of the bunch, but it also has the third-largest cash and bitcoin position, which it could use to expand and improve its ASIC fleet efficiency or cover costs should its operations become unprofitable . The same can be said of Marathon: it has the second lowest profit margin in the group, but it has the largest cash and BTC position, a massive war chest that it could use to weather short to midterm unprofitability.

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Expansions Will Be Crucial For Staying Ahead Of The Pack

Additional variables that can be used to evaluate companies are plans to expand fleet and power capabilities, where a few companies stand out compared to the rest. Riot has the most outstanding ASIC purchases of any public miner, a whopping $550.6 million worth. The company is building out a 100% immersion-cooled facility, which has begun energizing, and it will outfit this with next-generation machines from MicroBT, one of the two main mining producers. This new facility will likely improve on Riot’s already low operating costs, and it should have plenty of capital in its treasury to fund the remaining expansion, especially if it covers the remainder of an outstanding at-the-market for equity financing.

Bitfarms has the second most outstanding ASIC orders, worth $143.7 million. This is a necessary move that will help it improve its fleet efficiency, which is the worst. In addition to its cash and BTC treasury, Bitfarms opened a $375 million at-the-market offering to fund its expansion. Cleanspark has the third most outstanding ASIC orders, $281 million worth, which will further improve its already ultra-efficient mining fleet. Cleanspark has a smaller cash position than both Riot and Marathon, so it will have to rely mainly on an $800 million at-the-market offering (this ATM was originally for $500 million, but Cleanspark added on another $300 million to it this year)

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Regarding megawatt expansions, some miners, like Cleanspark and Marathon, have focused exclusively on M&A to expand their footprints. Cleanspark made a reputation for itself in 2022 with a series of acquisitions in Georgia, and in 2024, it acquired three new sites in Mississippi.

Others, like Riot, Cipher, Core Scientific and Hut 8, are building their own sites. Riot recently energized the first segment of its Corsicana facility in Texas, and Cipher plans to complete the first section of its Black Pearl site in Texas in 2025. However, Hut 8 and Core Scientific have not published timelines for their respective constructions in Utah and Oklahoma .

For the rest, Bitfarms, Terawulf and Iris are focusing on expansions at already operating facilities.

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Decision Points: Stick To Miners With Proven Track Records of Expansion

All things considered, the halving has seriously compressed the margins of the public miners, but they aren’t all in trouble yet. This could change depending on what bitcoin does over the next few months, but things could also swing in a positive direction should bitcoin’s price rally to new all-time highs or if transaction fees pick up once again.

However, many public miners we’ve touched on in this report have likely done enough to weather the year ahead. Investors would do well to pay attention to those who used the liquidity they produced in 2023 to expand their facilities and upgrade their fleets; in this arena, Cleanspark, Riot, and Marathon are standouts, while Terawulf, Iris, and Cipher made steps in the right direction, as well.

On the other side of the spectrum, Core Scientific still has massive debt ($864 million), while Hut 8’s hashrate decreased in 2024 after Marathon purchased the Kearney and Granbury sites, and it has undisclosed ASIC purchases outstanding, indicating that it does not have a clear strategy for expanding in 2024. As for Hive, the miner has a handful of next-generation ASICs on order but no plans to expand to new facilities.

Perhaps, as Marathon’s acquisition of its first fully-owned facilities suggests, the next Bitcoin mining epoch will demand that miners own their own facilities and vertically integrate as much as possible. Additionally, those miners with proven power trading strategies, like Riot and Cipher, and those with behind-the-meter rates, like Terawulf, will likely do well (although, for its part, Terawulf has a lot of debt to chew through a burden of $75.9 million as of the end of the first quarter of 2024).

Simply put, the clear goal going forward is efficiency and cutting costs. Those miners with clear strategies to lower their operating costs, whether through hedging and trading strategies for power or by deploying more energy-efficient ASICs, will be in a better position over the coming years. In this vein, an overlooked miner could be Bitfarms. The company has one of the lowest power costs among its peers, and if it completes its expansions on time, it will drastically improve its energy efficiency and increase its profit margins. These expansions could put it in a league with Riot, Marathon, and Cleanspark regarding hashrate size. Its market cap is currently $880 million, whereas the leading miners are in the billions. If Bitfarms completes its planned expansions this year and in the first quarter of 2025, its valuation should catch up with these leaders.

 
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