State Of The Mining Industry: Survival Of The Fittest
Hash rate had its first major drawdown since July 2021. Difficulty adjustment hits a record low. Public miners are feeling the pressure as the tough conditions may last for a sustained period of time.
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Record Downward Difficulty Adjustment
The mining industry continues to take a beating as rising energy inflation, debt burdens and depressed bitcoin prices take their toll. At the end of November, we saw a 13.1% decline in hash rate from all-time highs. However, of the major hash rate declines since 2016, that’s still relatively small compared to the handful of down periods over 15% during that time.
The latest 7.32% downward difficulty adjustment is a direct response to all of that hash rate going offline. As we stand today, the hash rate is right around 250 EH/s and down 7.84% from its all-time high of approximately 273 EH/s. This is the largest downward difficulty adjustment we’ve seen since July 2021, when we saw a series of downward difficulty adjustments following the Chinese mining ban. This should bring some temporary relief to current miners, but it's too early to say if this trend in declining hash rate has already concluded.
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Even with the latest drawdown in hash rate, we’re not seeing announcements come from major public miners. Most public miners’ hash rate is either flat or is growing over the last month. The elephant in the room is still Core Scientific and what’s to come of their self-mining hash rate of 14.40 EH/s and total hash rate, including hosted hash rate of 24.4 EH/s. On the brink of bankruptcy and after losing $1.71 billion in 2022, cash will likely be depleted soon and the company will need more liquidity to continue. The below chart shows maximum installed capacity of hash rate, which can vary from a miner’s operating hash rate.
From those who have provided monthly production updates so far, bitcoin holdings are largely rising from the biggest three treasuries across Riot, Marathon and Hut 8 accounting for 27,579 bitcoin. Bitfarms sold a meaningful amount from their treasury which is likely related to paying down their current debt facilities.
Mining revenue pressures relative to recent trends can be easily viewed through the Puell Multiple, capturing a ratio of current daily revenue over the last 365-days moving average daily revenue. Daily revenues are still fairly depressed from the one-year trend and look more akin to the 2015 cycle where it stayed this way for many months to come. The fall in revenue comes at the same time as miners facing a regime shift to higher energy costs with rising electricity prices across the board. A look at cumulative 30-day miner revenue shows the same pressures with 30-day cumulative well below what we saw back in July 2021 capitulation.
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