Starting in late 2021, mining firms took out big loans to build out mining capacity. This hypercharged the development of new mining sites and the hashrate quickly climbed. However, the economics of mining also deteriorated significantly due to the increased competition and, later, the bear market – sending some of the industry’s biggest companies to bankruptcy court.
In the last few weeks, the economics of mining have improved, along with the price of bitcoin. The hashprice, a measure of mining profitability, bounced back to over $70 per petahash/second (PH/s) from below $60/PH/s at the end of 2022.
With profitability on the horizon, miners – including those with less efficient setups – have plugged back in machines they took down to deal with the market headwinds.
At an electricity cost of 6 cents per kilowatt hour (kWh), “equipment with an efficiency of 50J/TH is now profitable whereas a month ago, equipment with an efficiency of 40J/TH could barely generate any meaningful profit,” Zhao said.
“Legacy commitments” and increased deployment of newer, more efficient and powerful machines account for the growth of the network, wrote analysts from investment bank B. Riley in a note to investors on Jan. 31.
But the turbo-growth of 2022 will not be repeated: The overall deterioration in mining economics will stunt the rate of hashrate growth in the next year, analysts said.
“While it took less than one year for the Bitcoin hashrate to grow from 200 to 300 EH/s, we will likely have to wait considerably longer until it breaks 400 EH/s. I'm confident we will end 2023 at below 350 EH/s, as the poor mining economics of 2022 didn't incentivize new investments,” Jaran Mellerud, analyst at mining services Luxor Technologies, said.
D.A. Davidson analyst Chris Brendler said that, given current bitcoin prices, the network growth is “here to stay” in a Jan. 31 note to investors. That’s due to a recent drop in the price of natural gas, which means lower power prices for miners. The analyst predicts the hashrate will reach 363 EH/s by the end of 2023.