Despite Headwinds, Bitcoin Miners Are Still Buying New Hardware — Here's Why

As revenues continue to decline and operational costs rise, industry experts say: Decryption Bitcoin miners continue to invest in new specialized hardware, The Future of Major Crypto Networks Despite short-term struggles.

According to Glassnode Report Bitcoin's hash rate, a key indicator of mining activity, released this week remains just 1% shy of its all-time high. Despite a steep drop in revenue.

The mining industry is currently facing a dual challenge: rising mining difficulty and declining transaction fee income. As the hash rate increases, the difficulty of mining and earning BTC block rewards also increases, driving up production costs.

This, combined with the cooling of demand for high-fee transactions, Rune Tokens and Non-profit– Like Ordinalhas put pressure on miners' profitability in recent months. Still, miners continue to invest in new ASIC hardware, in part due to the need to stay competitive in an environment where older machines are quickly becoming obsolete.

One of the main factors driving this trend is the increasing energy efficiency of modern ASIC equipment, giving miners better control over their operational costs.

talk DecryptionIlya Otitchenko, lead analyst at crypto exchange CEX.IO, said the energy efficiency of dedicated Bitcoin mining hardware will “more than double” from 2018 to 2023, “leading to a significant reduction in energy consumption per coin produced.”

This advancement allows miners to mitigate rising electricity costs and mining difficulty, allowing them to remain profitable even as mining costs rise. In an unfavorable market environment.

While the price of Bitcoin has remained relatively strong, the pressure from transaction fees has eased, putting further strain on miners' profits. With transaction fee revenues falling to a tiny fraction of what they once were, miners have become more reliant on block subsidies to stay in business.

Interestingly, mining companies are beginning to change their strategies in response to this pressure on profits.

Until now, most of the bitcoins mined have been sold to cover operational costs, but the report points out that many companies are now holding part of the bitcoins they mine as treasury reserves. For example, Marathon Digital said in July that Adopt a “Full HODL” strategyThe company has announced that it will no longer sell any mined BTC and is in fact buying more from the market.

Jeffrey Hu, head of investment research at Hashkey Capital, sees this as a sign of confidence. Bitcoin's long-term value.

“Mining companies are holding part of the supply they extract, which means they expect prices to rise in the future,” Hu said. Decryption“This is a sign of confidence and could reduce selling pressure in the market and support prices.”

But Hu also warned that the strategy carries risks, particularly as mining companies could be forced to sell stockpiles during an economic downturn, exacerbating selling pressures.

Ryan Lee, principal analyst at Bitget Research, said part of the reason for the increase in hash rate is the re-deployment of older mining equipment, which has become profitable again due to Bitcoin's price increase over the past year.

“As the price of bitcoin rises, previously unprofitable hardware becomes viable, so older machines are starting to run again. This, combined with new investments in more efficient machines, is driving up the total hash rate,” Lee said.

He also pointed to recent tightening regulations in places like Russia, as well as positive signals from figures like former President Donald Trump, who voiced support for Bitcoin and the crypto industry as he sought to return to the White House. These changes are reducing market uncertainty and boosting hash rates, Hu noted.

While these factors can help offset some of the revenue challenges, experts agree that mining companies need to explore alternative revenue streams to ensure long-term profitability. Decryption When we investigated the status of Bitcoin mining in July 2024, the company Overcoming an “identity crisis” It's kind of — but it's something that may ultimately help them in the long run.

Livepeer co-founder and CEO Doug Petkanics suggested that bitcoin miners are well positioned to diversify into AI computing, which requires massive amounts of computational power.

“Demand for AI computing power is growing exponentially. With existing energy and cooling infrastructure, mining companies can add GPUs and enter this market. Providing new revenue streams” said Petkanics.

Diversification may be key to surviving an increasingly competitive mining industry, with companies such as Core Scientific and Bitdeer among those providing computing power for the AI ​​needs of bitcoin businesses to make up for potential shortcomings.

Otitchenko predicts there will be further consolidation, with better-capitalised mining companies likely to outlast smaller ones.

CleanSpark Acquisition Its acquisition of GRIID in June this year for $155 million is a good example of the company beefing up its hosting capabilities as part of its growth strategy. Similarly, Bitfarm recently Acquired Stronghold Digital Mining, meanwhile, Riot Platforms has acquired a 19% stake in Bitfarms and is looking to influence the company's direction.

Companies like Marathon Digital look future acquisition opportunities to secure low-cost energy and scalable infrastructure;

“We may see more mergers and acquisitions as big mining companies absorb struggling competitors and gain market share,” he said. For companies that don't adapt, rising operating costs could become unbearable, leading to major disruption in the industry.

Hu also mentioned innovative ways for mining pools to generate additional revenue, such as possible new funding products designed to protect miners from market volatility, and merged-mining for Bitcoin’s new Layer 2 solutions.

“Extractive industries could also grow in regions such as the Middle East, where natural resources and the rapidly growing cryptocurrency business bring new opportunities,” he added.

However, even with the diversification, miners’ profitability remains heavily dependent on block rewards, which currently account for over 90% of revenue.

“Transaction fees only become significant when there is a spike in fees, as we saw with Rune and Ordinal, but such events are temporary,” Otichenko said. “Block rewards remain the main source of revenue.”

Lee echoed this sentiment, warning that miners will eventually have to rely more on transaction fees as block rewards decrease with each halving. He predicted that Bitcoin's price could surge in the next bull run and reach $150,000.

This will encourage smaller players to enter the market by purchasing older, more affordable machines, leading to more retail participation in mining.

“Large miners may shift to asset management, but retail miners could generate stable cash flow if the price of bitcoin continues to rise,” Lee said.

Edited by: Andrew Hayward, Ryan Ozawa