Bitcoin Mining Faces Rising Costs As Hash Price Increases Only Provide Temporary Relief

Bitcoin mining difficulty reached a new high of 109.78 trillion, rising 1.16% in Sunday’s last adjustment. This represents a 24% increase over the last 90 days and a 52% increase over the last three months of the year. Meanwhile, Bitcoin’s hash rate also crossed the 800 EH/s threshold this month for the first time, indicating the network’s solid performance.

Despite these indicators of a strong network, miners face challenges due to halved block rewards and increased difficulty, which squeeze their profitability.

Temporary relief but cost pressures mount for Bitcoin miners

CoinShares’ Q3 Bitcoin Mining Report highlights that while these factors have increased mining costs, the recent rise in the price of the hash has provided temporary relief. However, this momentum is not expected to last and miners will have to adapt to long-term pressures from rising costs and competition for resources.

In its latest report, the European asset manager said production cost pressures are expected to continue and will be driven by fierce competition for land and power resources.

Hyperscalers, which offer more cost-effective alternatives, are outpacing miners and ultimately driving up operating costs. Meanwhile, the prices of the machines, which are closely related to the value of Bitcoin, will also increase, thereby increasing capital expenditures and depreciation expenses.

Miners explore AI and clean energy solutions

As a result, miners are adopting diverse strategies such as HODLing Bitcoin or exploring artificial intelligence (AI) partnerships, which may temporarily delay BTC production but open up new revenue streams.

CoinShares identified companies such as TeraWulf and Cipher are well positioned to take advantage of AI opportunities due to their strategic relationships with energy companies and their significant investments in clean energy. However, the financial impact of these companies may take some time to materialize, according to the report.

On the other hand, debt markets remain liquid and encourage miners to issue new debt, although increased interest expenses and insolvency risks are significant. Public miners like Argo face higher risks, especially if Bitcoin prices fall. This is due to negative shareholder equity and limited fundraising options.

Notably, the average cash cost of mining Bitcoin rose to nearly $55,950 in the third quarter, a 13% increase from the second quarter, with total costs, including non-cash expenses, rising to about $106,000 dollars Companies like TeraWulf have emerged as low-cost leaders thanks to lower debt expenses, while others like Riot and Marathon achieved quarterly production growth.

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