As bitcoin continues to dominate the cryptocurrency market, miners face a number of challenges that could affect their profitability in 2023. Despite optimistic forecasts for the first cryptocurrency, miners have faced serious obstacles in recent years.
The “growth at any cost” strategy, which involves constantly injecting capital into mining equipment, has led to a series of failures and bankruptcies during the prolonged crypto winter.
In 2023, miners are still facing some difficulties. While there have been some small positive changes in profitability in terms of the hash price, the hash price index itself has decreased in annual terms.
This, coupled with the high cost of energy consumption and maintenance, makes it difficult for many miners to turn a profit.
One challenge facing miners is the increasing competition in the market. With more miners entering the industry, it is becoming more difficult to mine bitcoin profitably.
Additionally, many countries are tightening regulations on mining operations, which could increase costs and decrease profits.
Another challenge facing miners is the high volatility of bitcoin prices. The value of bitcoin can fluctuate rapidly, which can make it difficult for miners to accurately forecast their profits.
This makes it essential for miners to carefully monitor the market and adjust their operations accordingly.
Despite these challenges, there are still opportunities for miners to make good money in 2023. For example, miners who are able to access cheap sources of energy and have access to the latest mining equipment may be able to achieve higher profit margins.
Additionally, miners who are able to take advantage of fluctuations in bitcoin prices may be able to increase their profits.
Overall, while the challenges facing bitcoin miners in 2023 are significant, there are still opportunities for those who are able to adapt and innovate:
Source: hashrateindex.com
The uncertain market situation continues to pose challenges for bitcoin miners in 2023. Despite the optimistic forecasts for the first cryptocurrency, many miners are still facing serious obstacles.
The “growth at any cost” strategy used by enthusiasts in 2021 and 2022, particularly in the acquisition of new mining devices for BTC, has led to failures and bankruptcies during the prolonged crypto winter.
In recent months, the dynamics of the growth of the BTC rate is higher than the growth of the total hashrate, which has led to small positive changes in the profitability of miners in terms of the hash price.
However, experts warn that if bitcoin rises noticeably in 2023, investors will begin to invest massively in mining enterprises. As a result, the total hashrate will increase, and the income in terms of the hash price will gradually decrease.
The question on every miner’s mind is how likely a bitcoin rally is and how long it will take for new investment to infuse.
Market experts suggest that only those miners who generate profit at the current “equilibrium hash price” are of interest to long-term investors.
Unfortunately, the hash price has settled at 6 to 8 cents per terahash per day, and many miners are still generating insufficient profits that don’t even cover their costs.
In such conditions, many creditors are revising existing agreements with mining companies for less profitable ones, as in the case of Greenidge Generation.
It is worth noting that the strategy of ASIC manufacturers during the crypto winter is to deploy capacities for self-mining, assuming that the costs will pay off in the future if the final product cannot be sold on the market at the moment.
Indicators in the stock markets confirm all the above data, as many public miners are currently trading 90% below their peaks.
This business is extremely undervalued, which is indirectly confirmed by the decrease in prices for ASIC equipment. Over the year, prices have decreased by more than five times, making it difficult for miners to maintain profitability:
Source: hashrateindex.com
The market situation for cryptocurrency companies is unpredictable and remains very volatile, with a strong correlation to the price of Bitcoin.
Despite this, many consider the crypto industry to be an “uninvestable industry,” but experts argue that this view doesn’t take into account all the specifics of the mining business. To understand the situation better, they propose to divide the mining industry into different business models.
On one hand, there are miners who have the necessary energy resources and production rights, making them less dependent on the hash price. However, these players are not the most significant market participants.
On the other hand, there are miners who have infrastructure assets but do not generate electricity on their own, which makes them more vulnerable to changes in the hash price.
Many of these miners may end up with nothing, even if they benefit from a short-term increase in the hash price. Their activities are less stable, as they are highly dependent on contracts with energy companies and agreements with creditors.
Lastly, there are miners associated with “hard-to-get” energy, making them attractive to long-term investors. These are original start-ups and enterprises that are at an early stage of their development.
They are monetizing off-the-shelf sources of electricity, like landfill methane or partnering with renewable “green energy” providers to contract for the future.
Their main risks are the problem of business scaling and volume restrictions on the electricity supplied. However, if they can find a supplier of cheap energy, it is beneficial for both the miner and the investor to invest in such a stable enterprise.
Experts expect that with the increase in the popularity of such a niche, we should see more cases where bitcoin mining is introduced into the chain of related industries.
These are companies that provide high energy consumption and where it is possible to monetize the heat received from mining for other purposes or energy that would otherwise be wasted.
The current level of the Bitcoin Energy Consumption Index indirectly supports this expectation:
hashrateindex.com
The present level of energy consumption estimation is roughly the same as in 2021 and 2022, but the crypto market is constantly evolving, and miners are increasingly opting for cheaper alternative or so-called secondary electricity to minimize costs, especially during bearish cycles.
Additionally, the slight increase in energy consumption can be attributed to the use of more energy-efficient equipment.
Although the carbon credit market is currently in its nascent stage, it is expected to become more profitable with an increase in the BTC rate.
However, the primary risk for miners in this scenario is the possibility of regulatory restrictions related to the “green trend” and the environment.
There is already a growing concern among regulators and officials about “industrial mining” or “licensed mining,” which considers special tariffs for market players, and such initiatives are being taken in countries such as Russia and Kazakhstan.
Despite this, the capacities for cryptocurrency production continue to grow in the Russian Federation, which is an argument in favor of deregulation.
However, opponents of the idea may argue for prohibitions and restrictions on the grounds of the alleged high environmental harm caused by bitcoin mining.
According to experts, the time for potential growth is approaching for miners who have access to various energy sources and suitable computing power, but it will require capital, and in some cases, a small amount of borrowed funds may be acceptable.
Therefore, miners will seek conditions with the maximum term and the most favorable percentage ratio, while lenders will look for maximum security.
The bottom line is that miners in 2023 will face new requests from creditors regarding the financial support of their enterprises. This is reminiscent of the practice of publicly confirming the provision of centralized crypto exchanges after the collapse of FTX and the bankruptcy of other major players: