Challenges in mining industry profitability following halving event

Key Points:
Bitcoin’s hash rate dropped to its lowest level in two months, reaching 575 EH/s on May 10 as miners shut down unprofitable rigs following the halving event.
Mining difficulty decreased by 6% on May 9 to 83.15 T, a rare occurrence not seen since 2022 due to market disruptions caused by bankruptcies.
The hash price for Bitcoin hit a record low of $44.5/PH/s on May 2, a significant 75% decrease from the peak post-halving price of $180/PH/s.
Nine mining companies, including Marathon Digital Holdings, Riot Platforms, and TeraWulf Inc., had a combined estimated hash cost exceeding $55/PH/s in Q1 2024, operating below break-even levels.
Outlook:
Given the current hash price nearing mining companies’ fleet hash costs, the growth of hash rate may slow down or decline in the upcoming months. Factors such as compressed mining margins and reduced investments in mining companies could contribute to this trend. Additionally, miners in Texas may need to scale back operations due to summer heat waves.
Despite the challenges, the industry has seen significant investments in next-generation mining rigs like the S21 and M50 series, with deliveries expected to boost hash rate levels in 2024.
Sentiment:
While some mining companies like Riot and Marathon are thriving through efficient operations and expansions, others are grappling with profitability issues. This highlights the importance of optimizing operations by upgrading equipment, reducing energy costs, and seeking favorable regulatory environments.
Analysis:
Although there has been a decline in hash rate, miners continue to face compressed margins post-halving. Most companies experienced over a 50% decrease in margins between pre-halving levels and April 25.
The drop in Bitcoin transaction fees following the decline in revenue from Runes led to a record low hash price of $44.43/PH/day on May 1. This, in turn, resulted in an 11% decrease in the 7-day moving average hash rate, leading to a negative 6% difficulty adjustment on May 9, the largest since Dec. 5, 2022.
Furthermore, mining companies are struggling to cover operating costs due to current hash prices. The competition for power resources with AI data centers adds pressure, particularly in regions like Texas.
Challenges:
Profitability pressures are driving the need for equipment upgrades, but financial constraints hinder many mining companies from expanding operations and investing in efficient hardware. Declining investments in the sector have impacted the ability of mining companies to secure funding.
Public Bitcoin mining companies in North America raised nearly $2 billion in equity financing in Q1 2024, but only a fraction has been invested in Q2. Stock performance affects future funding amounts, with Bitcoin ETF launches prompting investors to shift away from mining stocks. Companies like Marathon Digital and Riot Platforms have seen stock price declines despite Bitcoin’s overall growth. Rising debt levels, such as Hut 8 Corp.’s debt-to-equity ratio increase from 15% to 29.52% in Q1 2024, pose further challenges for expansion. TeraWulf Inc. also faces a high debt-to-equity ratio of 36.9%.