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Bitcoin Miners Face Rising Costs and Competition in Q3

The Bitcoin mining industry is currently grappling with a multitude of challenges, including increased production costs, heightened competition, and difficult financial conditions. A recent report by CoinShares highlights the industry's current state and future outlook.

One of the main challenges for miners is the rising cost of production. The average cost to produce one Bitcoin has surged to $49,500, up from $47,200 in the first quarter. When factoring in depreciation and stock-based compensation, the average cost estimate rises to $96,100 per Bitcoin. To mitigate these costs, miners are adopting energy-efficient strategies and utilizing alternative energy sources. However, some miners are struggling to maintain profitability.

Additionally, the aftermath of the FTX collapse and rising interest rates have made it more challenging for miners to secure funding. Many are turning to "alternative funding sources, often through share issuance." However, this can dilute shareholder value. CoinShares analysts noted that
while this serves as a useful funding option for miners, it has been frustrating for investors due to significant shareholder dilution.

Looking ahead, Butterfill and Shannon predict that Bitcoin's hashrate will reach 765 EH/s by the end of 2024 but could decline until the next halving event in 2028. They stated that
hash prices, a measure of potential miner profitability, have also achieved new lows this year... we expect them to continue to decline but remain range bound between $50–32/PH/day until the next halving event in 2028.
Analysts also anticipate that Bitcoin mining will become increasingly competitive, with miners who have low costs and efficient operations gaining a significant advantage.

Cormint emerged as the lowest cost producer of Bitcoin at $16,700 per BTC, followed by TeraWulf at $18,700. In contrast, Riot had the highest cost at $65,900 per Bitcoin but earned $13.9 million in power curtailment credits in the second quarter of 2024.

The CoinShares report also examines how miners are adapting to current challenges. Some miners, like Riot and Bitfarms, are focusing on capital efficiency and diversification by prioritizing efficient growth and acquiring pre-built assets. Others, such as Core Scientific, are exploring artificial intelligence (AI) infrastructure to stabilize revenues.

The analysts concluded that the future of Bitcoin mining hinges on effective cost management and capital allocation. Miners with robust strategies will be better positioned to navigate the increasing difficulty of mining and market volatility.