CoinShares Reports Rising Bitcoin Mining Costs and Strategic Shifts

Overview of Increased Mining Costs

The latest Q3 mining report from CoinShares reveals that the Bitcoin mining industry has been grappling with escalating costs and strategic adjustments. The report, authored by James Butterfill and Max Shannon, highlights a challenging year for miners, with rising production costs and complex market conditions.

Escalating Production Costs

According to CoinShares, the average cost to produce one Bitcoin has surged to $49,500 based on Q2 cash costs, up from $47,200 in Q1. When accounting for depreciation and stock-based compensation, this figure rises to $96,100. These increased costs are compounded by high mining difficulty levels, putting pressure on miners' profitability.

Challenges in Accessing Credit

Following the FTX collapse and subsequent crises, coupled with rising interest rates, miners have faced difficulty accessing credit. This has forced them to explore alternative funding sources, often through share issuance, which has led to shareholder dilution. The report notes that miners' share prices have struggled to keep pace with Bitcoin's price movements, missing out on gains driven by US spot Bitcoin ETF launches.

Predicting Hashrate Growth

CoinShares dedicates significant resources to forecasting hashrate growth. The report suggests that while traditional mathematical models have been inadequate, a piecewise exponential model provides a closer approximation. This model projects the total network hashrate will reach 765EH/s by the end of the year, with potential energy saturation from stranded gas by 2050. This shift could reduce carbon emissions from flared gas by 63%.

Comparing Mining and Direct Investment

The report also compares the profitability of mining Bitcoin versus direct investment. A 1 MW mining project could see a full return on investment within 27 months, assuming Bitcoin reaches $130,000 by 2026. However, direct investment in Bitcoin might yield better returns unless miner fee revenue significantly increases.

Cost of Production and Hashcost Analysis

Cormint emerges as the lowest-cost producer, with innovative power management strategies lowering costs to $14.9k per Bitcoin. Meanwhile, TeraWulf benefits from a fixed-rate power contract, keeping costs at $18.7k per Bitcoin. The report also introduces the hashcost metric, which evaluates daily operational costs per PH/s of hash rate, further highlighting Cormint's cost efficiency.

Strategic Shifts and Future Outlook

As mining rewards halve every four years, companies are compelled to cut costs and increase production. Strategies such as power curtailment and acquiring pre-built infrastructure are proving cost-effective. Furthermore, the trend towards AI infrastructure, as seen with Core Scientific, offers a path to sustainable growth.

For more detailed insights, visit CoinShares' official blog.