Research Summary
The report by CoinShares provides an in-depth analysis of the Bitcoin mining network, focusing on the environmental impact, profitability, and future trends. It also examines the upcoming Bitcoin halving event in 2024 and its potential impact on miners. The report further explores the efficiency improvements in Bitcoin mining and the role of Bitcoin mining in reducing emissions caused by gas flaring.
Key Takeaways
Bitcoin Mining Network’s Growth and Impact
- Significant Increase in Hashrate: The Bitcoin mining network saw a 104% increase in hashrate in 2023, raising concerns about environmental sustainability and the profitability of the mining process. The upcoming halving event in April 2024 is expected to impact higher-cost miners more severely, potentially pushing them out of the market due to decreased immediate income from mining rewards.
- Efficiency Improvements: Despite the growing power demand of the Bitcoin network, there have been significant improvements in efficiency, with the current average efficiency at 34W/T and projections indicating a potential drop to 10W/T by mid-2026.
Bitcoin Mining and Environmental Sustainability
- Use of Stranded Energy: Bitcoin mining is often conducted using stranded energy, which is typically found in remote locations, and approximately 53% of the energy used for Bitcoin mining is now sustainably sourced.
- Reducing Emissions: The report suggests that Bitcoin mining could play a role in reducing emissions caused by gas flaring, addressing a major environmental concern. Currently, only 120 MW of Bitcoin mining capacity is using energy from stranded gas, indicating a significant potential for emission reduction if expanded.
Impact of the Upcoming Halving Event
- Increased Cost of Production: Post-halving, the average cost of production per Bitcoin is estimated to be US$37,856, which could affect the cost structures and profitability of miners, especially if Bitcoin prices do not remain above $40,000.
- Pressure on Miners: The upcoming halving event will pressure miners to reduce SG&A (Selling, General & Administrative Expenses) costs to avoid operating losses and potential liquidation of assets. Unless bitcoin’s price remains above $40,000, only a few miners like Bitfarms, Iris, CleanSpark, TeraWulf, and Cormint are expected to operate profitably post-halving.
Actionable Insights
- Exploring Efficiency Improvements: With the significant improvements in the efficiency of Bitcoin mining, there is a potential for miners to explore and invest in more efficient mining hardware and technologies to reduce costs and increase profitability.
- Utilizing Stranded Energy: Given the increasing use of stranded energy in Bitcoin mining, miners could explore opportunities to tap into these energy sources, particularly in remote locations, to reduce costs and contribute to environmental sustainability.
- Preparing for the Halving Event: With the upcoming halving event expected to increase the cost of production and impact profitability, miners need to prepare by optimizing their cost structures, reducing SG&A costs, and exploring strategies to maintain profitability post-halving.
