The Unstable Cost of Bitcoin Mining Mining Companies Seek to Cut Expenses to Maintain Profitability

The Unstable Cost of Bitcoin Mining Mining Companies Seek to Cut Expenses to Maintain Profitability

The Unstable Cost of Bitcoin Mining Mining Companies Seek to Cut Expenses to Maintain Profitability

According to the “DL News” report, the cost of Bitcoin mining has become increasingly unstable, making it a turbulent period for miners. According to the Canadian listed mining company Hut 8, they hope to maintain profitability by cutting costs and using special software.

According to the data from “Finance M Square”, the average cost of mining one bitcoin surged to $83,668 in early June, about 37% higher than the current price of about $61,000. Although mining costs have plummeted to $45,719 this week, it is very likely to rise again.

Hut 8 CEO Asher Genoot stated in an interview with DL News that “miners who have not reached a sufficient scale” are likely to no longer be profitable in this environment, and if they have not stopped mining, they will be forced to shut down.

As more and more miners join the Bitcoin network, solving the complex equations that bring rewards becomes increasingly difficult. This mechanism may help explain the drastic fluctuations in mining costs, as unprofitable miners will shut down their mining machines. In addition, the Bitcoin network completed its fourth block reward halving in April this year, which may affect the recent financial situation of miners.

Cutting costs
The biggest operating cost for Bitcoin miners is energy, and many miners have locked in long-term contracts to withstand the volatility of the energy market. Hut 8 stated that the company reduced operating expenses in the first quarter by stopping unprofitable production and initiating a budget review process for recurring expenses. According to Hut 8’s first-quarter financial report, the company’s average cost of producing one bitcoin is $24,594.

Debt financing is also a major issue. In order to remain competitive, mining companies must regularly update equipment and adopt newer, more efficient models. To do this, they often raise debt to fund these acquisitions.

The key is the hash price
According to Hut 8’s Genoot, the key to determining the profitability of miners is an indicator called the hash price, which is calculated based on the mining difficulty, Bitcoin price, and network rewards of the Bitcoin network.

To assess profitability, miners look at the hash price relative to energy costs and the efficiency of mining machines. According to Genoot’s calculation, the current hash price is about $0.053. He stated that this means that the energy cost for miners needs to be less than $0.065 per kilowatt-hour to be profitable.

Closely monitoring the hash price is one of the ways Hut 8 maintains profitability. Genoot stated that his company runs software on the mining machines, and when electricity prices exceed expected income, the mining machines will automatically shut down. This allows Hut 8 to mine profitably when it is profitable and further control costs, which smaller operators cannot do.

Miners are not only concerned with the current profitability of their operations, but they also need to plan for future potential situations. The cost of Bitcoin mining is directly related to the network hash rate – that is, the total computing power of all Bitcoin mining machines. The amount of Bitcoin produced by miners is usually consistent with their contribution to the hash rate.

Related articles: “JPMorgan: Market value of Bitcoin mining companies listed in the US reached a record $22.8 billion in June”, “Miners cash out during Bitcoin rebound, amount transferred to exchanges reaches a two-month high”, “ViaBTC: Innovation in Bitcoin is the key to solving the mining subsidy problem”