Bitcoin price increase provides much needed relief for BTC miners

Bitcoin mining powers the network operations and BTC price. During the 2021 bull run, some mining operations raised funds against Bitcoin ASIC and BTC reserves.

Miners also pre-ordered ASICs at high prices and some raised funds by conducting IPOs.

As the cryptocurrency market turned bearish and liquidity in the sector seized, miners found themselves in dire straits, and defaulters were forced to sell their BTC holdings near market bottoms or file for bankruptcy.

Notable Bitcoin mining failures in 2022 came from Core Scientific filing for bankruptcy, but BTC’s performance in early 2023 is starting to suggest that the biggest part of the capitulation has passed.

Despite the strength of the current bear market, few miners were able to increase production throughout 2022, and on-chain data indicates that the accumulation of Bitcoin miners began to increase in December 2022 and the momentum continued into 2023.

Bitcoin’s rise to $22,000 improves miner margins

BTC mining operations were significantly aided by the 2023 Bitcoin rally on January 20, when the price of BTC reached $22,153 with a 7-day gain of 17%.

The increase in the price of Bitcoin and the hash value of the network helps BTC miners who maintain a net positive balance at the end of 2022, which increases the stability of the business. In addition, now Bitcoin miners are mostly returning to profit.

Public miners are mined against Bitcoin sellers. Source: Hashrate Index

While more miners are returning to Bitcoin mining rigs, the difficulty is increasing, which could hinder future growth. As conditions improve, will Bitcoin miners continue to rally or continue their selling trend?

Luxor Mining’s Bitcoin mining analyst Jaran Mellerud summed up 2022 by saying:

“Between January and November, public miners uploaded 51,180 bitcoins while producing 47,284 bitcoins.”

BTC hashprice, a metric that measures the market value of mining or computing power, provides insight into the profitability of Bitcoin mining operations.

Since January 1, 2023, the hashprice has increased by more than 20% and on January 19, it became more expensive. Bitcoin mining profitability increased from $0.06 per Terra Hash per day (TH/d) to $0.07874 TH/d, benefiting from BTC’s price increase. Hashprice has not witnessed recent levels since early October 2022.

Bitcoin hash value. Source: Hashrate Index

Although Bitcoin mining profitability has improved since early 2023, the industry still faces rough waters ahead. According to Niko Smid, co-founder of Digital Mining Solutions:

“The recent rise in prices is positive, but many miners are still operating on small margins. A year ago, the hashrate was $0.22/TH/day. Although the market has bottomed out, the current economic conditions for mining remain difficult.

Bitcoin miners still sell the bulk of mined BTC

Bitcoin miners are benefiting from the price increase, and data shows that many are continuing to sell their rewards.

Bitcoin miner positions and earnings. Source: CryptoQuant

The strongest mining operations have actually limited debt and expansion, or used a wise BTC selling strategy while making a profit. Anthony Power, a Bitcoin mining analyst at Compass Mining, compiled a list of miners’ reserves from the beginning of the year to the end of the year, using self-reported data.

Marathon Digital, the leader among the listed Bitcoin mining companies, held 8,133 BTC at the end of December 2022. The company plans to increase production based on hashprice profitability to further increase its advantage.

Difficulty in mining can prevent you from making a profit in the future

The mining difficulty metric adjusted upwards by 10.26% on January 16th as more Bitcoin miners restarted their BTC rigs. Bitcoin difficulty indicates the time and cost to mine BTC to receive a reward. The regulation was the largest since October 2022, and the increase in difficulty makes it more expensive for Bitcoin miners to earn rewards through the proof-of-work (PoW) consensus mechanism.

Bitcoin mining difficulty. Source: Hashrate Index

With the expected bitcoin halving event in 2024, mining BTC will become even more difficult and possibly more expensive for miners, putting further stress on already thin margins. Moreover, the last halving event in 2019 was followed by a 300% gain for BTC a year ago.

While miners are currently seeing some relief after a difficult year, there are potentially tough roads ahead. Business transactions are improved by Bitcoin miners selling for profit rather than borrowing against their Bitcoin holdings.