As Bitcoin Price Slides, Older Mining Rigs Are Becoming Less Profitable

Even as Bitcoin's mining difficulty adjusts downward, the price trend might spell a crisis for retail miners. On the other hand, it could be an opportunity for those looking to buy rigs.

AccessTimeIconMay 25, 2022 at 3:21 p.m. UTC
Updated May 11, 2023 at 4:59 p.m. UTC
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Mining a Bitcoin block just became easier because some miners have been dropping out of the network to cut their losses.

The difficulty of mining a bitcoin block fell by 4.3317% to 29.897T at 15:02 UTC on May 25. The bitcoin mining difficulty automatically adjusts every two weeks or so, depending on how much computing power, or hashrate, is securing the network, in order to keep the time required to mine a block around 10 minutes.

The adjustment is likely “due to a recent slow block production rate resulting from hashrate going offline due to the falling bitcoin price,” Jaran Mellerud, researcher at Oslo-based Arcane Research, told CoinDesk.

The price of bitcoin (BTC) suffered price losses over the past few weeks and older models of mining rigs have become unprofitable. So miners are powering them off to avoid shouldering the costs.

As of May 4, Bitmain’s Antminer s9 have been loss-making for miners that pay upwards of 6 cents per kilowatt hour (kWh) of electricity, according to data from Luxor and f2pool.

Historically, s9s, released in 2017, have been able to survive in the market. As of the end of 2021, they accounted for one-fifth of the total hashrate, according to research from CoinShares. Some of these rigs, clocking up to 14 terahashes/second (TH/s), have been plugged in for over five years. Bitmain’s latest rigs can deliver up to 255 TH/s of computing power.

Miners that use more powerful machines can withstand difficulty adjustments. According to its May 17 newsletter, Compass Mining (CMP) calculated that Bitmain’s Antminer s19, launched in 2020, can remain profitable even if the mining difficulty doubles, provided that miners pay less than 8 cents per kWh of electricity and the price of bitcoin is over $30,000.

Given that bitcoin is currently hovering around $30,000, “the cash flow break-even price for Antminer S9s is about [five cents], which is just above the industry median of [four cents],” Mellerud said. A lot of the network is powered by S9s, and with these rigs now unprofitable, overall computing power on the Bitcoin network has dropped.

The network’s hashrate has dropped around 9% from its high of 229 EH/s to 209 EH/s in the past month.

Weathering the storm

Miners that use hardware in the same category as Bitmain s9s with energy prices over 5 cents are likely to capitulate, Denis Rusinovich, co-founder of CMG Cryptocurrency Mining Group and Maverick Group, told CoinDesk. That might entail powering off their machines or selling them. Ethan Vera, chief economist and operating officer at Luxor, which runs a trading desk for mining rigs, agreed, saying that because S9s are still selling for $150-$300 per unit, mining farms might opt to sell them,

Retail miners will be most affected by the unprofitability of these mining rigs, agreed Rusinovich, Vera and Li Qingfei, the head of research at f2pool. Retail miners often use more expensive hosting packages and have higher capital expenditure to procure hardware, Rusinovich said.

Retail miners “must constantly upgrade to latest-generation hardware in order to be protected from downturns in mining economics,” Vera said.

However, Rusinovich thinks the market downturn will also challenge some industrial-scale operations; in particular, those that have raised funds through debt, often using bitcoin and hardware as collateral, as well as younger projects that were too bullish in their assumptions, he said.

The CMG Group CEO expects “some miners with long-term purchasing contracts” to run into “cash flow issues,” especially those that didn’t go through the last few down-cycles and were consequently too relaxed in their risk assessments.

Retail miners “have a few tricks up their sleeves,” said Alejandro de la Torre, founder of consulting firm PoW Energy and former VP of Poolin. “They usually purchase cheaper (but still perfectly fine) second-hand machines. They also toy around with the hashing rate of their machines by either lowering or overclocking the hashrate to help match their own unique variables,” so they might be able to continue working even under these current market conditions.

Econoalchemist, a pseudonymous home miner, writer and Upstream Data affiliate, told CoinDesk that home miners can have a lot of leeway and wide operating bands, such that “extremely unfavorable market conditions would need to persist for several months” for them to unplug their machines.

Retail miners can accumulate bitcoin at a discount when the price of the asset is high, such that they can absorb market fluctuations, the home miner said. What is more, more efficient mining rig models like the S19 Pro are still breaking even at 17 cents per kilowatt hour, which is below the average U.S. utility price, he said.

But “there are limits to how high the hashrate can get and how low the price can get before a home miner may be better off unplugging their ASIC,” Econoalchemist said.

By contrast, institutional miners can mitigate market risks “by obtaining cheaper power supply, procuring the high-end mining equipment from the main machine suppliers, cooperating with more professional mining sites and pools, and hedging the volatility of bitcoin payout with financial derivatives,” f2pool’s Li said.

BitFuFu and Bitdeer, two of the world’s biggest cloud mining platforms and, therefore, major providers of hashrate to retail miners, refused to comment on this story.

The bigger difficulty picture

However, overall, in the past year, the difficulty of mining bitcoin has increased by 30%, which has over time rendered older rigs unprofitable and squeezed miners’ margins.

Luxor’s Vera noted that if miners opt to sell their machines instead of turning them off, the hashrate will stay at higher levels.

Today’s drop in the bitcoin mining difficulty will provide some “short term relief” for miners struggling to make ends meet, said Whit Gibbs, founder and CEO of Compass Mining.

As always, a lot hinges on the price of BTC; if it continues in a downward spiral, more miners will likely be priced out. “As the plug accelerates, more models will be priced out like during the bear market of 2018-2019,” f2pool’s Li said.

The value of one terahash of computing power has dramatically decreased in the past six months, from a peak of around 40 cents per terahash per day, to 12 cents for the same computing power, Luxor Mining’s Hashprice Index shows.

(Luxor Mining, Hashrate Index data)
(Luxor Mining, Hashrate Index data)

Opportunities are starting to arise as the market becomes distressed, Vera said. The Luxor team thinks that “there are many miners who placed large futures orders” but are no longer able to take them on and “will be looking to liquidate them,” meaning that prices for bitcoin mining rigs could “slide down further,” Vera said.

At the same time, many home miners would rather “pay a premium on their bitcoin through mining at a loss,” Econoalchemist said. That’s because many mine at home to avoid exposing themselves to privacy risks, such as know-your-customer requirements, or the possibility of assets being seized or stolen when custodied by a centralized provider like a crypto exchange, he said.


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Eliza Gkritsi

Eliza Gkritsi is a CoinDesk contributor focused on the intersection of crypto and AI.

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