The worst days of bitcoin miners may be over, but a few significant hurdles remain.

The Bitcoin mining industry has been relatively stable in the face of bearish price action and tumultuous results. Exchanges and lending companies.

The network’s hashrate dropped slightly in late 2022, mainly due to an unprecedented snowstorm in the US, and has since recovered strongly to surpass its previous peak of 270 EH/s. It was particularly encouraging to see that the hashrate is above the summer 2022 low after the collapse of FTX.

Bitcoin 7 day average hash rate. Source: Glass Node

However, despite recent strength in a number of metrics, the mining industry faces a number of challenges, which will likely limit its growth going forward. Constraints include low profitability, the threat of new-age efficient machines and what’s to come. Bitcoin halving That will cut the rewards in half.

BTC mining remains a stressful industry.

While Bitcoin’s network hashrate has improved, miners are still under a lot of pressure due to low profitability. Bitcoin miners’ earnings have shrunk by a third of their value since the peak. Before the May 2022 price drop, miners earned more than $0.22 per TH/s per day, which has now dropped to $0.07.

The percentage of small-sized miners with BER values ​​above $25,000. Dropped From 80% in 2019 to 2% by 2022, which is a positive sign of the end of miners’ capitulation.

The sustainability of medium-sized miners with breakeven prices between $20,000 and $25,000 depends on the capital efficiency of the participants. The struggle for them is to survive until the bullish trend begins, hoping to capitalize on the next bullish cycle.

A significant drop in the prices of mid-sized machines suggests that their demand has decreased. According to Coin Shares, lowering machine prices would allow capital-rich institutions to “reduce their capital expenditure cost per TH/s and increase production without additional ongoing cash costs” by purchasing hardware at cheaper rates. However, this will come at the expense of existing miners, which will likely limit the growth of the industry as a whole.

Average cost of Bitcoin ASIC mining machines. Source: Insect Index

Moreover, even weakly financed companies will not be able to take advantage of the slowdown by increasing debt, especially when central banks around the world are raising borrowing rates.

Independent research firm, The Bitcoin Mining Blockpost, reached a similar conclusion about the growth of the industry in 2023. Their analysts predict that miners’ costs will “flatten and gradually move upwards” as early as 2020.

The pressure of more capable ASICs and the incoming BTC is halving.

The current Bitcoin mining industry is also facing significant challenges from the arrival of new and efficient machines and the reduction of rewards after halving in 2024.

Since June 2021, more energy-efficient miners have arrived, offering more than 100TH/s per Joule. This trend accelerated in Q2 2022 with the launch of new hardware equipment that was twice the performance of current miners at the time. Some of these miners have breakeven prices below $15,000.

Launch dates of miners with their power rating. Source: Insect Index

Performance gains will likely slow for the next two years due to microprocessor chip size limitations. The most efficient miner developed by Buttman, S. 19 exp, is a 5 nm chip. Going below this size significantly increases cost and the risk of production errors.

Yet, as the market for this type of commodity floods, mining difficulty for existing players will increase and they will gradually be pushed out. Thus, only competitive miners who can successfully scale up and sustain operations will survive this phase.

On top of that, miners will also have to prepare for the March 2024 halving event. CoinShares research pointed out that, given how the halving would directly affect miners, “one possible strategy for mining companies could be to reduce operating costs to their cash costs (including over Focus on reducing overhead, debt, hosting, etc.”

Will miners realize profits in 2023?

The above figures suggest that the worst days of miners capitulating may be over. However, the industry is under a lot of pressure, making it difficult to collect BTC.

Miners remain prominent sellers in the market. An update from Coinbase Institution on January 19 referred to that, “Crypto miners are starting to get a little more aggressive in selling.”

The one-hop supply metric of Bitcoin miners is calculated from the total holdings of addresses that received tokens from mining pools. The indicator has recorded a slight increase in miners’ balances since the beginning of 2023. However, the total amount is still below the 2019 lows, which points to the challenges of a rapid recovery in conditions unless the price is in miners’ favor.

Bitcoin One Hop Miner Supply. Source Coin Matrix

The fact that miners are continuing to sell with little hope of a near-term recovery could dash the hopes of those expecting a parabolic run in 2023. During the slow and steady, miners can continue to grow, start to regroup, and support the next bullish rally.