Bitcoin mining drives network transactions and BTC price. During the 2021 bull run, some mining farms raised funds against their Bitcoin ASICs and BTC reserves.
Miners also pre-ordered ASICs at a hefty premium and some raised funds by conducting IPOs.
As the crypto market turned bearish and liquidity within the sector was confiscated, miners found themselves in a bad spot and those unable to meet their debt obligations were forced to sell BTC reserves near the market bottom or file for bankruptcy
Notable Bitcoin mining bankruptcies in 2022 came from Core Scientific, which filed for bankruptcy, but BTC’s performance in early 2023 suggests most of the capitulation is over.
Despite the strength of the current bear market, some miners were able to ramp up production throughout 2022, and on-chain data shows that Bitcoin miner accumulation started accumulating in December 2022 and the momentum appears to be continuing into 2023.
Bitcoin’s rally to $22,000 improves miner margins
The 2023 Bitcoin rally, which saw the BTC price hit a yearly high of $22,153 on Jan. 20, up 17% in 7 days, has helped the BTC mining operation significantly.
A surge in the Bitcoin price and network hash price is helping BTC miners who have maintained positive net balances at the end of 2022, improving business stability. Also, bitcoin miners are now mostly back in profit.
Public Miners Selling Bitcoin vs. Mining. Source: Hashrate Index
As more miners turn to bitcoin mining rigs, the difficulty increases, which could hamper future upsides. As conditions improve, will bitcoin miners continue to accumulate or continue the selling trend?
Looking back to 2022, Jaran Mellerud, a bitcoin mining analyst for Luxor Mining said:
“Between January and November, public miners dumped 51,180 bitcoin, producing 47,284 bitcoin.”
BTC hash price, a metric that measures the market value of mining or computing power, provides insight into Bitcoin mining profitability.
Since January 1st, 2023, the hash price has increased by over 20% and on January 19th. Bitcoin mining profitability increased from $0.06 per terra hash per day (TH/d) to $0.07874 TH/d and this has benefited from BTC price rally. Hashprice has not seen recent levels since early October 2022.
Bitcoin hash price. Source: Hashrate Index
Although Bitcoin mining profitability has improved since early 2023, the industry is still facing rough times. According to Nico Smid, co-founder of Digital Mining Solutions:
“The recent increase in hash price is positive, but many miners are still operating on low margins. A year ago, the hash price was $0.22/TH/day. While the market has bottomed, current economic conditions for mining remain challenging.”
Bitcoin miners are still selling the majority of their mined BTC
Bitcoin miners are benefiting from the price surge and data shows many continue to sell their rewards.
Bitcoin miners positions and earnings. Source: CryptoQuant
The most robust miners actually limited leverage and expansion, or used a strategy to sell BTC while making profits. Using self-reported data, Bitcoin mining analyst for Compass Mining, Anthony Power, compiled a list of miner reserves at the start of the year versus year-end.
A year that started with so much promise and optimism and ended with several high-profile bankruptcies, with more likely to follow.
Here is part 1 of #BTC Mining year in review for @compass_mining which tackles some of the biggest stories in 2022https://t.co/cbFm8gFmR4 pic.twitter.com/Uyz6iitZRU
— Anthony P⭕️wer (@cazenove_uk) December 23, 2022
Marathon Digital, the frontrunner among publicly traded bitcoin mining companies, held 8,133 BTC at the end of December 2022. The company plans to increase production based on hash price profitability to further expand its advantage.
Mining difficulties could hamper profits in the future
As more Bitcoin miners turn their BTC rigs back on, the mining difficulty metric has adjusted upwards by 10.26% on Jan. 16. Bitcoin Difficulty indicates the time and cost to mine BTC to earn rewards. The adjustment was the largest since October 2022, and the increase in difficulty makes it more expensive for Bitcoin miners to earn rewards through the Proof-of-Work (PoW) consensus mechanism.
Bitcoin mining difficulty. Source: Hashrate Index
With the upcoming Bitcoin halving in 2024, mining BTC will become even harder and potentially more expensive for miners, putting even more strain on already thin margins. On the positive side, the last halving event in 2019 was followed by a 300 percent gain for BTC the year before.
While miners are currently seeing some relief after a difficult year, potentially bumpy roads lie ahead. Business operations appear to be improving as bitcoin miners sell for a profit instead of incurring debt against bitcoin holdings.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.