According to the report, after halving in April, the average mining cost for cryptominers will be $37,856 per Bitcoin. Thus, only 5 publicly mining companies out of the 14 reviewed will be profitable, assuming the price of BTC stays above $40,000. Along with this, CoinShares singles out only three companies, namely Riot, TeraWulf, and Cleanspark as best prepared for a possible Bitcoin price drop after halving.
How to mine BTC in 2024
In 2024, you can mine Bitcoins solo by buying powerful hardware or join pools and get rewards proportional to the capacity.
In addition to ordinary people, some large companies do this as a full-fledged business: they register, attract investments, sometimes issue shares, negotiate with electricity suppliers, and so on. But companies can also mine in pools; it depends on the strategy of each company individually.
The bankruptcy of such companies is also a risk that affects the entire network because the equipment is switched off and often sold on the market to compensate for losses. At such times, either larger players are strengthened or new ones emerge.
Mining report for 2023 and predictions for 2024 from CoinShares
The report focuses on the sustained growth of the Bitcoin network, trends in hashrate and energy efficiency, and the financial performance of 14 mining companies. CoinShares also gives predictions on these topics for 2024. This is especially interesting in the context of halving, which is expected to happen in April.
The report is quite large and interesting, with many charts and data analysis. We’ve summarised the most important and catchy things in three takeaways.
Takeaway 1. Mining has become more energy-efficient and environmentally friendly ⛏️
How it was in 2023. Over 2023, Bitcoin's hashrate increased by 104%, from 266 EH/s to an estimated 597 EH/s, and the network power consumption grew only by 44%, reaching 115 terawatt-hours (TWh).
Bitcoin hashrate refers to the total computational power used for mining, which in this material is in units of exa hashes per second (EH/s).
The network's power consumption is how much electricity Bitcoin mining consumes.
What does it mean? This small increase in network power consumption compared to hashrate growth indicates that mining hardware is becoming more efficient, giving more power with less energy used. Also, the report mentions that about 53% of the energy used to mine Bitcoin is green.
Prediction for 2024. The hashrate is predicted to drop to an approximate 410 EH/s in 2024 after halving and grow to 550 EH/s in the second half of the year. The post-halving decline is largely due to the exit from the market of inefficient participants whose costs greatly exceed Bitcoin's cost of production and whose reserves are insufficient to overcome difficult times. However, by the end of 2024, CoinShares expects the hash rate to recover and continue to grow.
Takeaway 2. Bitcoins are getting harder and more expensive to mine 💰
How it was in 2023. According to the report, in the third quarter of 2023, the weighted average for the cost of production and cash cost was approximately $16,800 and $25,000 per bitcoin, respectively.
The weighted average for the cost of production only takes into account the cost of hardware and electricity.
The cash cost includes some administrative and commercial costs incurred by mining companies, such as interest on debt or equipment maintenance.
What does it mean? Using their methodology and public company data, CoinShares has calculated the average spendings by the mining-companies on Bitcoin production. At current rates and BTC above $40,000, many of them are comfortable.
Prediction for 2024. After halving, the weighted average for the cost of production will rise to $29,300, and cash cost — to $37,800. This could lead to difficulties for many mining companies. With the same costs and hardware, their profitability would drop in terms of BTC mined after halving.
Takeaway 3. Only 3 companies are best prepared for halving 📊
How it was in 2023. One of the main problems for miners was high SG&A expenses. In 2023, it was possible to stay profitable while having them, and companies did not need to spend their reserves or borrow money in anticipation of Bitcoin price growth, as the price of 1 BTC production was lower than the rate.
SG&A stands for selling, general, and administrative expenses; they are not directly related to the production but depend on halving but rather on the general economic situation and the operating costs section. In the context of mining companies, these include salaries for employees, support for hardware, rental of premises for it, and so on.
What does it mean? Each company has its own business strategy and different conditions affecting costs. Some have better-optimised administrative costs but higher electricity costs; some have less energy-intensive hardware but a lower hash rate, and as a consequence, the number of Bitcoins mined; some prefer to sell Bitcoins immediately; and some accumulate them in anticipation of price growth. Now, the companies can work for profit without thinking about the optimization of all processes.
Prediction for 2024. Halving will bring changes to the companies' work. After that, only 5 out of the 14 considered will be able to run the business at a profit at a Bitcoin price of $40,000. CoinShares analysts highlight CleanSpark Bitfarms, Cormint, TeraWulf, and Iris. As you can see from the chart below, they are expected to spend less than the mentioned $37,800 (black bold horizontal line) to produce Bitcoin.
That said, the report separately mentions Riot Blockchain (dark brown column on the chart above) as the best company in terms of "runway", despite the fact that it will spend more than the estimated $37,800 to mine BTC.
Runway demonstrates how long a company can cover costs with its reserves in cash and Bitcoins. According to the chart below, Riot Blockchain's reserves (the first column on the chart below), including the company's operating and other expenses, will last until almost the beginning of 2028, making it the most sustainable company on the list.
In the end, CoinShares considered only 3 companies, namely Riot, TeraWulf, and Cleanspark, best positioned going into the halving based on a Cash-Cost of Production that depends on SG&A.
Why is mining industry analysis important
Bitcoin mining has long ceased to be a matter of geeks running mining programs on their home computers. It is now a serious, high-risk business, and many factors other than the value of Bitcoin are important to its success. Public companies have to think about long-term strategies: whether to sell the mined cryptocurrency immediately or wait for better prices, how to optimise work processes, whether to raise debt capital, and so on.
Not everyone can survive a long bear market without going bankrupt. However, such market processes open the way for new players to enter the business. Ultimately, it is the miners who determine the stability and security of the Bitcoin blockchain. At the same time, their decisions to sell or hold Bitcoin also influence its price.
Why to trust CoinShares
CoinShares is one of the largest European asset managers, with a focus on digital assets. The company has been operating since 2014 and has launched several financial products that have made it possible to invest in cryptocurrencies in traditional markets in Europe through its Crypto ETPs (Exchange Traded Products).
ETFs (Exchange Traded Funds), which were recently approved by the US SEC, are one of the possible types of ETPs.
CoinShares is also known for its reports on the crypto industry. Every week they release reports on the flows of funds in digital asset funds. Thanks to them, you can track the sentiment of big investors about cryptocurrency.
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