Last year was tough for cryptocurrency markets as many prices plummeted. But bitcoin has had a strong rally so far this year, and some mining experts see this as an opportunity for the space to stage a comeback.
When bitcoin prices dropped to $16,000 in late 2022, profits were getting squeezed, Andy Long, CEO of bitcoin mining-focused White Rock Management, told TechCrunch. However, things may be looking up: Bitcoin’s price has increased about 39% to around $23,000 year to date, according to CoinMarketCap data.
That means margins are expanding, said Christian Lopez, director of fintech investment banking and head of blockchain and digital assets at Cohen & Company Capital Markets.
The cryptocurrency is still down from around $44,100 on the year-ago date, but industry members see a silver lining. “If you said to someone this time last year, ‘How would you feel about $23,000 for bitcoin?’ They would be horrified,” Long said. “We have fairly short memories, so in a year’s time. we will look down the barrel, and we’ll be at or over an all-time high hopefully, and over $100,000 by the end of 2024.”
Given the bitcoin price increase, miners are breathing a collective sigh of relief, Christopher Bendiksen, Bitcoin research lead at CoinShares, told TechCrunch. “The price recovery has relieved the worst pressure from many miners, and margins are looking much healthier.”
Last year was tough for bitcoin miners; talks of bankruptcy lingered around many players in the industry thanks to significant downturns from high energy prices and revenues dropping, which in turn tightened margins and increased profit losses. In December, bitcoin miner Argo Blockchain avoided bankruptcy after Galaxy Digital agreed to acquire its facility for $65 million, TechCrunch previously reported.
Core Scientific, one of the largest publicly traded crypto mining firms in the U.S., filed for Chapter 11 protection in December. That came just months after Compute North, a bitcoin mining data firm, filed for Chapter 11 in September; it had raised $385 million in strategic funding just seven months prior.
While there are signs of recovery, bitcoin miners often have a different cost basis, so not all are in the clear yet, Bendiksen said. “There is also quite a bit of debt coming due these days, so liquidity squeezes might still hit those with limited cash and large upcoming payments.”
The average bitcoin miners are using Bitmain’s S19 or S19 Pro bitcoin miners, Lopez said. The breakeven point with that equipment is anywhere from $16,000 to $18,000 at bitcoin prices, he added. “So at today’s prices, they’re profitable. Obviously not as profitable as when bitcoin is up to $50,000, but still profitable.”
There are also elements like energy prices that play into bitcoin miners’ situations. But the mild winter across the U.S. has helped keep charges low, Long noted.
The two biggest factors contributing to bitcoin miners’ recovery are energy prices and the price of bitcoin related to hash price, which is a combination of bitcoin price and its mining difficulty, Lopez said. “So if energy prices are up and bitcoin’s price is low, you’re squeezing margins.”
But now, the industry is seeing the opposite happening: “The price of bitcoin is coming up, and energy prices are actually going down, so you’re seeing an increase in margin,” Lopez said. “That’s about 80% to 90% of your economic value because the price of energy and electricity is such a big driver.”
The hash price is near an all-time low, while hashrates, which are the amount of numerical guesses mining machines generate in a second, are near all-time highs, according to data from Blockchain.com compiled by Woobull Charts.
As long as these bitcoin prices and energy levels are maintained, miners will stick around, Lopez said.
In general, bitcoin miners are becoming more sophisticated with their energy usage, Lopez added. “Before it was cowboys who didn’t care about the price of energy because it was irrelevant, but now there’s been stress in the past year and a half, and they realized they have to manage their energy and deploy strategies in regards to that.”
“I’m sure there will still be volatility,” Long said. “It’s the only thing you can rely on, but I think there’s a lot of support behind the new baseline price level. If it goes down again, it won’t concern me, because the long term trend will be up.”
“There’s some technical analysis that says the darkest periods for bitcoin are 12-18 months after the last halving, then you’ll see a rally leading up to the next bitcoin halving, which is sometime in April or May of 2024,” Lopez said.
Bitcoin halvings are events that happen almost every four years when the blockchain rewards for miners get cut, effectively reducing the supply of new bitcoins by 50%. Over time, the outcome of each halving will decline as the block rewards approach zero when the total 21 million bitcoins are mined (but that won’t be for a very long time, thanks to this mechanism).
Typically during halving cycles, there’s a curve that happens around six months after halvings of all-time high peaks and then drawbacks, Long said. “There’s no guarantees, but I think the sheer economics and demand will be bullish in the long term.”
After a cascade of unexpected events in 2022, “a lot of the fear is out,” Lopez said. “The last shoe to drop I think was [the] FTX [bankruptcy] and the follow-up from DCG and Genesis. I don’t think there’s anything else hidden, but there might be. If there’s more fraud or bad bets, you’ll see more volatility. As long as we have nothing else to uncover, it’ll probably trade sideways for a while, and you’ll see a run up into the next halving.”
All in all, “recovery is well underway,” Long said. “The bear market we just went through was long, but it’s time for the momentum to change. This doesn’t mean we won’t still have volatility, but I think we’ll continue to see a small march up.”