The price of bitcoin is currently about 70% below its most recent all-time high, and the mining industry is being hit particularly hard by the ongoing bear market. During bear markets, miners are frequently the subject of widespread fear, uncertainty, and doubt (FUD), but the data regarding how these operators are impacted and behave in this environment is straightforward. This article outlines six significant data sets that show how the bear market has affected bitcoin miners and their business.
Monthly dollar-denominated revenue is a key indicator of the mining industry’s health. Miners anticipate a decline in revenue during a bear market, and the bar chart below shows that this is indeed taking place. This metric is primarily declining due to a lower bitcoin price expressed in dollars. In fact, June is expected to see the lowest monthly mining revenue total in 18 months. Additionally, miners enjoyed a comfortable nine-month run of at least $1 billion in total sector revenue from August 2021 to April 2022. That streak was broken in May, and sales fell again in June.
Transaction fees are an important (and contentious) category of revenue when it comes to mining. Both proponents and detractors of bitcoin contend that a robust fee market is essential for Bitcoin’s long-term success. In addition, fees typically account for a sizeable portion of monthly mining revenue when the market is bullish. But historically, this revenue stream is destroyed by bear markets, and the present market situation is no exception. Fees made up roughly 10 to 15 percent of monthly revenue from August 2021 to May 2022, but since then, that percentage has been averaging around 1 percent. According to the line graph below, fees haven’t contributed more than 2% of monthly mining revenue since August.
Bear markets frequently result in sharp drops in the price of mining equipment due to the strong positive correlation between these two prices. This relationship has a number of root causes, including repricing based on current revenue produced per machine and some fundamental psychological elements specific to the mining industry. Curiously, when the market declines, machine prices typically lag behind bitcoin. The line chart below demonstrates this phenomenon. At the time of writing, prices for mining equipment across all efficiency and profitability levels have decreased by 50% to 60% so far this year. The market for mining equipment will undoubtedly decline if the price of bitcoin keeps falling.
In addition to hardware prices falling, older machines are being completely eliminated from the market because rational miners are compelled to turn off less productive hardware in order to avoid mining bitcoin at a cost that is too high for the market to bear. The share of hash rate contributed by Bitmain’s older generation machine, the Antminer S9s, is where this effect is most evident. According to data from Coin Metrics displayed in the chart below, S9 machines now only contribute 5% of the total hashrate, down from a share of 35% a year ago. The S9 once more appears to be scrap metal at these BTC prices, according to Coin Metrics analyst Parker Merritt.
Hash price, which calculates the dollar-denominated revenue per unit of hashing power activated per second per day, is the most accurate metric for tracking mining revenue. This measure frequently varies independently of price and may decline even as the price of bitcoin rises. Since early 2022, the hash price has been falling while mining difficulty has increased, as seen in the graph below. Hash price actually fell below $0.10 for the first time since late October 2020 in late June. The mining industry is experiencing yet another sign of more challenging and unprofitable market conditions.
The strongest indicator of the state of the market right now is probably collapsing share prices for publicly traded mining companies. For the reasons outlined above and more, the majority of mining companies are holding physically depreciated mining equipment, running with narrower profit margins, and earning much less expensive digital assets as bitcoin’s price declines. However, mining stocks also frequently function as a high-beta play to the price of bitcoin; as a result, when the price of bitcoin moves upward or downward, the price of mining stock typically experiences even more pronounced movements in the same direction.
The line graph below displays the normalized one-year performance of twelve various Nasdaq-listed mining companies. At the time of writing, almost every company has experienced a decline of at least 60% during that time, with Stronghold Digital Mining having experienced the worst decline of 94%. For bitcoin miners and their shareholders, times are difficult.
When the market is bearish, miners are frequently used as a barometer to determine whether sentiment is improving or deteriorating. Conditions are indeed poor as evidenced by miners liquidating equipment, unplugging machines, and selling coins. However, rather than having an impact on the price of bitcoin, all of this data ultimately tracks it. Therefore, it is unclear when any of the aforementioned data sets will get better; this will depend on whether or not the bitcoin market levels off or turns bullish. Miners are still operating in accordance with their current plans in order to survive yet another protracted bear market until that time.
