Bitcoin Mining Challenges Persist Amid Positive Month for U.S.-Listed Miners

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Bitcoin Mining Challenges Persist Despite Positive Month for U.S.-Listed Miners

Team FS

03/Jun/2024

Key Points:
1: Bitcoin's network hashrate declined sequentially for the first time since December 2022, impacting mining economics and profitability.
2: U.S.-listed mining stocks reported record first-quarter revenue and increased market share, despite challenges in the mining sector.
3: Despite the decline in network hashrate, the average Bitcoin price remained stable, with record-low mining profitability and fluctuating transaction fees.

The world of Bitcoin mining faced significant challenges in the past month, marked by a sequential decline in the monthly average network hashrate for the first time since December 2022. This decline is attributed to the ongoing pressure on mining economics, particularly for inefficient and older ASICs (Application-Specific Integrated Circuits), following the halving. JPMorgan's recent report sheds light on these challenges, painting a picture of a mining sector grappling with profitability issues amidst a changing landscape.

One of the most notable impacts of the declining network hashrate is its effect on daily mining revenue, which plummeted by more than 50% below pre-halving levels. This sharp decrease is expected to temper hashrate growth in the near term, indicating a challenging period for Bitcoin miners. Despite these obstacles, May brought some positive news for U.S.-listed mining stocks, as companies reported record revenue and adjusted EBITDA for the first quarter of 2024. This achievement is particularly noteworthy considering that these figures exclude mark-to-market gains on HODL balances, highlighting the underlying strength of these companies.

Furthermore, U.S.-listed miners managed to increase their share of the network hashrate, signaling resilience and adaptability in the face of adversities. The aggregate market cap of the 14 U.S.-listed miners tracked by JPMorgan surged by 19% sequentially, reaching $18.4 billion by the end of May. Leading this charge was Iris Energy, whose shares rallied by nearly 80% during the month, showcasing investor confidence in the sector.

Despite the challenges in mining economics, the average Bitcoin price in May remained relatively stable, hovering around $65,200, with a modest increase in the seven-day rolling average to approximately $68,400. However, Bitcoin's annualized volatility remained consistent at 51%, indicating continued market fluctuations. Transaction fees also experienced variability, fluctuating between 3% and 10% of the block reward in May, with sporadic spikes exceeding 100%.

The decline in network hashrate had a direct impact on Bitcoin mining profitability, which reached record lows in May. On average, Bitcoin miners earned $49,000 per EH/s in daily block reward revenue, the lowest level recorded. This stands in stark contrast to the peak of $342,000 per EH/s in November 2021, underscoring the significant challenges facing miners. Transaction fees, which typically provide additional revenue for miners, fluctuated but generally remained modest compared to previous periods.

Looking ahead, the proved (remaining) block reward and the four-year block reward revenue opportunity both saw a 9% increase from April, reaching $87.9 billion and $43.8 billion, respectively, by the end of May. Despite the decline in mining profitability, the aggregate market cap of U.S.-listed miners remained robust, comprising 21% and 42% of the nominal value of the proved and four-year block reward opportunity, respectively.

In conclusion, while Bitcoin mining faced challenges in May, including a decline in network hashrate and record-low profitability, U.S.-listed mining stocks demonstrated resilience and growth. Despite the fluctuations in the market, these companies reported strong financial performances, buoyed by investor confidence and strategic positioning within the sector. As the landscape continues to evolve, miners will need to navigate these challenges adeptly to capitalize on future opportunities in the dynamic world of cryptocurrency mining.

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Bitcoin Mining Challenges Persist Despite Positive Month for U.S.-Listed Miners

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