Rising Bitcoin Production Costs Challenge Miners After Halving

Bitcoin (BTC) production costs reached a new level after the halving event according to FinBold, where the reward per block mined was halved, posing significant challenges to miners. With the halving, each Bitcoin now requires twice the effort to be extracted, which directly impacts the profitability of miners, as the Bitcoin reward reduces while operational costs remain the same or increase.

Charles Edwards, founder of Capriole Investments, highlighted that the electrical cost for mining a single Bitcoin reached a staggering $77,400 on April 22. This figure indicates that miners are spending approximately US$11,000 more on electricity for each Bitcoin mined, considering the cryptocurrency’s current price of around US$66,175.

Welcome to a new paradigm.

Bitcoin Electrical Cost is now a whopping $77.4K.
This is the raw electricity cost to power the network, per Bitcoin mined.

Bitcoin Miner Price hit $244K on Saturday!
This is the block reward + fees per Bitcoin mined. It boomed as transaction fees hit… pic.twitter.com/woF6utozmZ

— Charles Edwards (@caprioleio) April 22, 2024

Capriole Investments calculates that the total cost of producing one Bitcoin is even higher, reaching US$128,989. This suggests that each Bitcoin currently mined represents a loss of around US$52,000, highlighting intense pressure on miners to increase the price of Bitcoin and adjust to new production costs.

Other sources, such as data from MacroMicro and estimates from the University of Cambridge, show that the average cost of mining Bitcoin was over $102,000 as early as April 21, representing a cost/price ratio of 1.57. These numbers not only confirm the trend of rising costs, but also illustrate the challenge of maintaining profitable operations under new market conditions.

The Hashprice Index, developed by Luxor, offers insight into the profitability of mining for each Terahash per second (TH/s) of applied computing power. With the recent halving, this index reached an all-time low, further complicating the situation for miners, especially when we consider the increase in mining difficulty, which requires more TH/s to produce the same amount of Bitcoin.

The financial situation of publicly traded Bitcoin mining companies reveals a grim picture. With the exception of Marathon Digital Holdings and Gryphon Digital Mining, all reported significant losses in their operations. According to data from CompaniesMarketCap, these losses totaled US$1.27 billion, reflecting market conditions prior to the halving, when costs were substantially lower.

Given this scenario, the continuation of high production costs, without a corresponding increase in the price of Bitcoin, could lead to greater centralization of the network around a few large miners. This raises concerns about the security and decentralization of the market’s main cryptocurrency.

Disclaimer:

The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing in or trading cryptocurrencies carries a risk of financial loss.