Bitcoin mining is experiencing its worst crisis in 15 years!

The Current State of Bitcoin Mining

The flagship cryptocurrency is presenting significant challenges to its miners, and not in a positive manner. In November, as the price of bitcoin experienced a notable decline, mining machines continued to operate, albeit at a loss. Companies ranging from CleanSpark to Bitfarms, even major players in the crypto industry, are facing considerable strain. The current environment, characterized by a depressed market, an approaching halving event, and investor apprehension, has created an atmosphere of unease within mining operations. This report provides an overview of the situation.

Bitcoin Mining Operations Facing Losses and Increasing Debt

The bitcoin mining industry is navigating a period of unprecedented turbulence, primarily due to a dual challenge. Firstly, the hashprice, a metric that measures revenue generated per unit of computing power, has dropped to $35/PH/s, a significant decrease from $55/PH/s recorded in the third quarter. Secondly, the costs associated with electricity, hardware, and general operational expenses continue to escalate.

Consequently, the latest generation of mining machines now require more than 1,000 days to achieve profitability. This presents a critical issue given that the next halving event is anticipated in approximately 850 days, meaning the reduction in block rewards will occur before the initial investment is recouped.

Even the most efficient mining operations, as indicated by public Q3 reports, are no longer generating substantial profits. The mounting debt further exacerbates these financial pressures. As reported by The Miner Mag, CleanSpark's decision to fully repay its bitcoin-backed credit line at Coinbase, shortly after raising over a billion dollars through convertible bonds, highlights the urgent need for miners to reduce debt and preserve liquidity.

Industry Pivot Towards Artificial Intelligence

The cryptocurrency sector is increasingly focusing on artificial intelligence (AI) and High-Performance Computing (HPC). The traditional 100% mining model appears to be reaching its limitations, with the hash cost, averaging around $44/PH/s according to Q3 data, placing significant pressure on profit margins. This has led some companies to scale back or re-evaluate their mining activities.

Bitfarms has announced a gradual cessation of its mining operations by 2027, and other companies are following a similar trajectory. Among the top ten miners by computing power, seven are already generating revenue from AI or HPC services, with the remaining three having plans in development.

The shift towards these new technologies is further emphasized by the financial strategies being employed. The Miner Mag noted that the third and fourth quarters saw an aggressive return to debt financing, with a move from low-coupon convertible bonds to higher-cost secured senior bonds, as miners sought to fund their transition to HPC and AI infrastructure.

November's Financial Performance for Miners and Valuations

November proved to be a challenging month for the cryptocurrency mining sector, with significant declines in both revenues and valuations. Miner revenues dropped by 20.9%, decreasing from $1.595 billion to $1.262 billion. Transaction fees contributed a mere $9 million to this total, representing a minimal portion of overall revenue.

Simultaneously, the global network hashrate reached unprecedented levels at 1.1 ZH/s. This indicates increased competition and a more difficult environment for achieving profitability. As a result, margins are shrinking, and the pressure on miners is intensifying.

The financial markets have also impacted publicly traded mining companies, with MARA, CleanSpark, and Riot experiencing substantial drops in their valuations, some by as much as 54%. This sustained pressure, coupled with an uncertain future, makes adaptation a critical factor for survival.

Key Figures Summarizing the Situation

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  Bitcoin price at the time of writing: $87,061.
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  Current hashprice level, considered a structural floor: $35/PH/s.
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  Average time to break even on a latest generation mining machine: 1,000 days.
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  Amount raised in Q3 by miners through convertible bonds: $3.5 billion.
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  Proportion of the top ten largest miners globally that have begun their pivot to AI or HPC: 7 out of 10.

Despite the prevailing sense of urgency within mining operations, some analysts are closely watching the current week, viewing it as potentially decisive for shaping the remainder of the year. This period could represent a critical juncture in a challenging race. In the dynamic world of cryptocurrency, circumstances can change rapidly, often within the span of a single block.