According to the “DL News” report, the cost of Bitcoin mining has become increasingly unstable, making it a turbulent period for miners. According to the Canadian listed mining company Hut 8, they hope to maintain profitability by cutting expenses and using special software.
According to the data from “Finance M Square,” the average cost for miners to produce each Bitcoin soared to $83,668 in early June, about 37% higher than the current Bitcoin price of around $61,000. Although mining costs have plummeted to $45,719 this week, they are likely to rise again.
Hut 8 CEO Asher Genoot stated in an interview with DL News that “miners who have not reached a sufficient scale” are likely to no longer be profitable in this environment, and if they have not stopped mining, they will be forced to cease operations.
As more miners join the Bitcoin network, solving the complex equations that bring returns becomes increasingly difficult. This mechanism may help explain the drastic fluctuations in mining costs, as unprofitable miners shut down their machines. Additionally, the Bitcoin network completed its fourth block reward halving in April, which may affect miners’ recent financial situation.
Cutting expenses
The biggest operating cost for Bitcoin miners is energy, and many miners have locked in long-term contracts to withstand fluctuations in the energy market.
Hut 8 stated that the company reduced operating expenses in the first quarter by stopping unprofitable production and initiating a budget review process for recurring expenses. According to Hut 8’s first-quarter financial report, the company’s average cost to produce each Bitcoin was $24,594.
Debt financing is also a major issue. To remain competitive, mining companies must regularly update equipment and adopt newer, more efficient models. To do this, they often raise debt to fund these purchases.
The key lies in the hash price
According to Hut 8’s Genoot, the key to determining miners’ profitability is an indicator called the hash price, which is calculated based on the mining difficulty of the Bitcoin network, the Bitcoin price, and network rewards.
To assess profitability, miners look at the hash price relative to energy costs and machine efficiency. According to Genoot’s calculations, the current hash price is about $0.053. He stated that this means miners’ energy costs need to be below $0.065 per kilowatt-hour to be profitable.
Closely monitoring the hash price is one of Hut 8’s methods to maintain profitability. Genoot stated that his company runs software on the machines, and when electricity prices exceed expected income, the machines will automatically shut down. This enables Hut 8 to mine profitably when it is feasible and further control costs, which smaller operators cannot do.
Miners are not only concerned with whether their current operations are profitable, but they also need to plan for potential future scenarios. The cost of Bitcoin mining is directly related to network hash rate – the total computing power of all Bitcoin mining machines. The amount of Bitcoin produced by miners is usually consistent with their contribution to the hash rate.
Related articles: “JPMorgan: Market value of U.S.-listed Bitcoin mining companies reached a record $22.8 billion in June,” “Miners cash out during Bitcoin rebound, transferring the highest amount of coins to exchanges in two months,” “ViaBTC: Innovative Bitcoin applications are the key to solving mining subsidies.”