Mining a bitcoin block just got easier as some miners dropped out of the network to cut their losses.
The difficulty to mine a bitcoin block dropped by 4.3317% to 29.897T at 15:02 UTC on May 25. The bitcoin mining difficulty is automatically adjusted about every two weeks, depending on how much processing power (hashrate) the network secures, to keep the time needed to mine a block at about 10 minutes.
The adjustment is likely "due to a slow block production rate resulting from the hashrate going offline due to the falling bitcoin price," Jaran Mellerud, a researcher at Arcane Research in Oslo, told CoinDesk.
The bitcoin (BTC) price has suffered losses in recent weeks and older models of mining rigs have become unprofitable. As a result, miners are shutting them down to avoid paying the costs.
Since May 4, Bitmain's Antminer s9s have been loss-making for miners paying more than 6 cents per kilowatt-hour (kWh) of electricity, data from Luxor and f2pool show.
In the past, s9s that launched in 2017 were able to survive in the market. By the end of 2021, they accounted for one-fifth of the total hashrate, according to a CoinShares study. Some of these facilities, which reach up to 14 terahashes/second (TH/s), have been in operation for more than five years. Bitmain's newest facilities can deliver up to 255 TH/s of processing power.
Miners using more powerful machines can withstand difficulty adjustments. In its May 17 newsletter, Compass Mining (CMP) calculated that Bitmain's Antminer s19, which will launch in 2020, can remain profitable even if mining difficulty doubles, provided miners pay less than 8 cents per kWh of electricity and the bitcoin price is above $30,000.
Given that bitcoin is currently around $30,000, "the cash flow breakeven price for Antminer S9s is about [five cents], which is just above the industry median of [four cents]," Mellerud said. Much of the network is powered by S9s, and now that those rigs are unprofitable, overall computing power on the bitcoin network has dropped.
The network's hash rate has dropped by about 9% in the last month, from its peak of 229 EH/s to 209 EH/s.
Weathering the storm
Miners using hardware in the same category as Bitmain s9s with energy prices above 5 cents will likely capitulate, Denis Rusinovich, co-founder of CMG Cryptocurrency Mining Group and Maverick Group, told CoinDesk. That could mean turning 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 due to the fact that S9s are still selling for $150-$300 per unit, mining farms could opt to sell them,
Retailers will be most affected by the unprofitability of these mining rigs, according to Rusinovich, Vera and Li Qingfei, f2pool's research director. Retail miners often use more expensive hosting packages and have higher capital expenditures to purchase hardware, Rusinovich said.
Retail miners "need to constantly upgrade to the latest generation of hardware to be protected from economic downturns in mining," Vera said.
However, Rusinovich believes the market downturn will also be a challenge for some industrial operations, particularly those that have financed themselves through debt, often using bitcoin and hardware as collateral, as well as more recent projects that have been overly optimistic in their assumptions, he said.
CMG Group's CEO expects "some miners with long-term purchase contracts" to run into "cash flow issues," especially those that didn't ride the recent down cycles and consequently were 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 Poolin vice president. "They tend to buy cheaper (but still perfectly good) second-hand machines. They also play around with the hash rate of their machines, either lowering it or overclocking it to match their own variables," so they might be able to continue operating under current market conditions.
Econoalchemist, a pseudonymous home miner, author, and Upstream Data partner, told CoinDesk that home miners have a lot of leeway and bandwidth, so "extremely adverse market conditions would have to persist for several months" for them to take their machines offline.
Retail miners can accumulate bitcoin at a discount when the asset's price is high, so they can absorb market fluctuations, Home Miner said. In addition, more efficient mining rig models like the S19 Pro still break even at 17 cents per kilowatt hour, which is lower than the average U.S. electricity price, he said.
But "there are limits to how high the hashrate and how low the price can get before a private miner is better off unplugging its ASIC," Econoalchemist said.
In contrast, institutional miners can mitigate market risks by "obtaining cheaper power supply, sourcing high-end mining equipment from major machine suppliers, working 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 largest cloud mining platforms and thus major hashrate providers for retail miners, declined to comment for this story.
The overall picture of difficulty
Overall, however, the difficulty of bitcoin mining has increased by 30% over the past year, making older assets unprofitable over time and squeezing miners' profit margins.
Luxor's Vera noted that the hashrate will remain at a higher level if miners decide to sell their machines instead of shutting them down.
Today's drop in bitcoin mining difficulty will bring "short-term relief" to miners struggling to make ends meet, said Whit Gibbs, founder and CEO of Compass Mining.
As always, much depends on the BTC price; if the downward spiral continues, more miners will likely be forced out of the market. "If the plug accelerates, more models will be forced out of the market, as during the 2018-2019 bear market," said Li of f2pool.
The value of a terahash of computing power has fallen dramatically over the past six months, from a peak of about 40 cents per terahash per day to 12 cents for the same computing power, Luxor Mining's Hashprice Index shows.
As the market gets squeezed, opportunities are starting to emerge, Vera said. The Luxor team believes there are "many miners who have placed large futures orders" but are "no longer able to take them, and they will try to liquidate them," meaning bitcoin mining rig prices could slide further downward, Vera said.
At the same time, many home miners would rather "pay a premium for their Bitcoins by mining at a loss," Econoalchemist said. That's because many mine at home to avoid exposure to privacy risks, such as customer identity requirements or the possibility of assets being seized or stolen if they are held by a centralized provider such as a crypto exchange, he said.