According to CoinShares’ Q3 Mining Report, the Bitcoin mining industry continues to face steep challenges this year as rising production costs and constrained access to credit affect profitability.
Despite these setbacks, miners have been actively expanding their infrastructure, anticipating potential price increases. This expansion has driven mining difficulty levels to record highs, compounding high production costs for miners.
Bitcoin Miners Face Rising Production Costs Amid Market Uncertainty
The report estimates that the average cash cost for listed miners to produce one Bitcoin reached $49,500 in Q2, up from $47,200 in Q1. When accounting for depreciation and stock-based compensation, this figure climbs to $96,100 per Bitcoin.
At current Bitcoin prices, most miners still find cash-based mining operations profitable. However, the added expenses of infrastructure depreciation and compensation-related costs pose an additional financial burden, leading to substantial cost variations among mining operations.
Note that Bitcoin is currently trading at $ 72,361.45 and is up by 8% in the last 7 days. The global market cap is at $1.43 trillion. The 24-hour trading volume is down by 28.08%.
Credit access has also become a critical issue, with rising interest rates and a lack of favourable terms following the FTX collapse in 2022. With limited funding options, miners are increasingly relying on share issuance to finance their activities.
This strategy provides necessary funds but has led to shareholder dilution, frustrating some investors. The report notes that listed miners have missed out on significant gains, particularly from the launch of U.S. spot Bitcoin ETFs, which drove up Bitcoin prices without a similar increase in miner stock values.
Electricity Costs and Hash Rates
CoinShares’ analysis also offers a profitability model for mining operations. The report finds that a 1 MW project using container storage, costing approximately $0.74 million and using high-hash-rate miners, could achieve a full return on investment within 27 months if Bitcoin prices reach $130,000 by 2026.
Electricity costs remain steady at $0.045 per kWh. However, the report suggests that direct investment in Bitcoin may offer better returns over four years, particularly given the current volatility in mining revenue and operational expenses.
With uncertain mining revenues, especially with the Bitcoin halving events, mining companies diversify by venturing into fields like artificial intelligence (AI). The shift reflects an industry-wide search for alternative income sources to stabilize revenue.
The report adds that mining profitability could improve if miner fee revenue significantly increases. Current fee income averages about 5% of daily issuance, but projections suggest that it would need to reach 70% to match direct Bitcoin investment returns.