Bitcoin’s total hash rate reached a new all-time high, according to Coin metrics dataa few weeks after the end of a two-month capitulation period for the industry.
In a more challenging environment, miners are tested to see if they can maintain profitability. Budgets are falling under stress as the price remains mostly flat as the hash rate and mining difficulty continue to rise.
A broad miners capitulation began in the early summer when the price of bitcoin took a deep dip, wiping out all gains made in the previous year. Under pressure, most public miners who previously committed to holding their BTCs began selling their daily mined bitcoins to cover operating costs in the face of diminishing margins. Later, some would even start selling the BTC they had put in the cold room.
Bitcoin mining is a self-regulated market where players aim to find the cheapest energy sources and the most favorable jurisdictions available around the world in an effort to reduce costs and maximize profits. As more players enter the market, it becomes more difficult to mine bitcoins. As the difficulty increases, miners operating at low margins are expelled from the market. To keep an average of 10 minutes between blocks, the network adjusts the mining difficulty to the downside, making bitcoin mining a little easier and allowing other miners to enter the industry.
With the hash rate now hitting new highs and a bitcoin price struggling to show signs of a sustained recovery, miners are facing a tough environment.
“The big problem for miners right now I think is that energy costs have risen as the hash rate has risen and bitcoin prices have stayed low,” Fred Thiel, CEO of the Nasdaq-listed bitcoin miner, told Bitcoin Magazine. Marathon Digital Holdings.
However, according to Thiel, not all players in the industry are equally affected. “Those miners who are well positioned, well capitalized and can operate from a position of strength will benefit.”
The marathon, Thiel argued, is one of them.
“Our models have been built around the fact that we believe that, for the rest of this year, bitcoin will move about where it is now, up and down a bit,” he said. “So, as a company, let’s plan [that] scenario.”
When it comes to increasing the global hash rate pressure, Thiel said Marathon is in a good position as its own growth not only reduces the effects of the new ATH, but also contributes to that same higher reading.
“We focus on increasing our hash rate very significantly, from 3 EH [exahash] at 23 EH by the middle of next year, “he said.” So we’re actually one of the companies contributing to that hash rate growth. “
Executive forecasts that the hash rate will continue to grow over the course of the year as thousands of machines ordered but still to be delivered by other big players in the industry will be deployed on farms around the world.
“There have been a lot of orders for the miners that were publicly disclosed last year and earlier this year, so it is assumed that people will follow those lines.”
The same cannot be said for the little players, however.
“I think the people who don’t follow tend to be the smaller, less well-capitalized miners. They have trouble financing the miners’ purchase, or are in a position where their energy costs have gone a bit upside down, ”Thiel added.
Miners have enjoyed an extended honeymoon with profits over the past couple of years when a strong bull market for the price of bitcoin followed. Raking in incredible dollar returns on HODLed coins, miners saw their margins increase as bitcoin hit new highs. That reality has prompted many companies to leverage their businesses and borrow to expand operations, a strategy that quickly went down as the price of bitcoin began to plummet. Now, as the hash rate increases, these miners are even more stressed.
Geopolitical tensions for the industry heat up as the White House report suggests a ban
Bitcoin’s new high hash rate comes 18 months after the Chinese government banned bitcoin mining altogether, a move that halved the network’s hash rate when local miners shut down their machines and started mining. transfer their operations overseas. As a result, the U.S. share of Bitcoin’s global hash rate has increased dramatically as the country has positioned itself as a top destination for marginalized businesses. Kazakhstan and Russia also welcomed the machines.
However, the United States, which according to data from the Cambridge Center for Alternative Finance currently hosting around 37% of Bitcoin’s global hash rate, it has begun to show some signs of hostility towards the industry.
Driven by concerns about energy consumption, the White House’s Office of Science and Technology Policy (OSTP) published a detailed report last week, by recommending the Biden administration to ensure the development of Bitcoin and cryptocurrency in general in the country, is responsible for concerns about climate change.
In its more than 30 pages, the document, which is the brainchild of Biden’s executive order on digital assets of March 2022, argues that while proof-of-work mining can help the energy industry and climate in some specific areas, its net impact both are negative. The OSTP has gone so far as to recommend that the administration and Congress consider limiting or completely banning the use of proof of work in the United States.
One of the positive acknowledgments provided by the report concerns the use of bitcoin mining as a baseload energy demand mechanism.
“You are providing extra capacity to the grid when it is needed and you are not really a parasitic load on the grid because you are behind the meter, using energy that would otherwise go to waste,” Thiel told Bitcoin Magazine. “If you place bitcoin mining behind the counter on a renewable site, you are incentivising more renewable production.”
Thiel also pointed out that since it is the US midterm election year, most of the harsh language in the report could be purely part of political games.
“There is a lot of politics going on and part of that is the positioning by the politicians,” he said. “Personally, I don’t think there will be a wholesale ban on job trials.”
While not impossible, it appears that a possible ban on PoW is very unlikely in the United States given the nature of its government compared to China’s, as well as the extent to which bitcoin mining is integrated into the country’s power grids and communities.
However, if such an event were to happen, the network would still be ready to withstand such an attack. In the same way that the network did not die when mining was banned in China – the country with the highest share of hash rates at the time – it is well positioned to show a similar result in a potential US ban. Nonetheless, the network may also be able to continue to thrive in the United States during a ban, which is evidenced by the fact that there are still many hashing machines in China; according to CCAF, the Asian country still hosts over 20% of the global Bitcoin hash rate.