Power Costs Redefine Bitcoin Mining Industry Landscape
The Bitcoin mining landscape is undergoing significant changes due to rising power costs and shifting capital toward AI projects. For six years, the hashrate, a measure of Bitcoin mining capacity, had been steadily increasing with double-digit percentage gains every year on a first-quarter basis. However, this trend reversed in late 2022, and by July 11, the hashrate had fallen around 15 percent from its level at the start of the year.
The decline was driven by a drop in the Bitcoin price and a shift toward AI projects. This led to severe financial pressure on miners, with the average cash cost for publicly listed mining companies reaching about $79,995 per Bitcoin in the fourth quarter of last year. At this cost level, each coin mined would generate a cash loss of roughly $19,000.
In response, many mining companies have redirected their equipment and power infrastructure toward AI and high-performance computing operations or sold off their Bitcoin holdings to raise liquidity. Bitdeer, for example, sold virtually all its Bitcoin reserves in February, and six major publicly listed mining companies sold a combined 32,000 Bitcoin in the first quarter of this year alone.
The difficulty adjustment mechanism in Bitcoin's network automatically raises or lowers the mining difficulty when total computing power increases or decreases. From January to July this year, the difficulty was adjusted 15 times, with nine downward adjustments. This means that operators who keep their equipment running capture a larger share of rewards as fewer players remain in the market.
According to CoinShares, when hashprice falls to around $30 per petahash per second (PH/s) per day, roughly 15 to 20 percent of global mining capacity operates below breakeven. The line between profit and loss comes down to power costs and the energy efficiency of mining hardware.
The geography of the mining industry is also shifting due to power costs. US-listed mining companies held a global hashrate share of about 41 percent early this year, but as they pivot toward AI, countries with lower electricity costs are gaining ground. Kyrgyzstan more than tripled its global hashrate share year-on-year, while Paraguay now ranks fourth and Ethiopia settled into eighth place.