Cryptocurrency miners are spending heavily on cutting-edge technology to earn more bitcoin, trying to gain market share and undermine rivals ahead of their fees being halved in about four months. They make the most while they can, also taking advantage of rather high values in the market.
The “miners,” or rather their companies listed on global exchanges, have pledged this month to spend about $600 million to buy new chips and servers that are the keystone of the digital ledger behind bitcoin, according to The Miner Mag, an industry data provider. The December amount is nearly half of the total $1.3 billion committed for the year.
The explosion in spending comes despite the fact that miners suffered heavy losses in the cryptocurrency market crash of 2022. Now they are trying to profit from the surge in the price of bitcoin, which has soared to an 18-month high of more than $44,000.
The bull run also comes ahead of a plan scheduled for April to halve the incentive system that verifies all bitcoin transactions. Optimists hope the so-called “halving”—a once-every-four-year event to slow bitcoin circulation—will spur further gains for the cryptocurrency next year, but the move also threatens to undermine miners’ shaky profitability.
“Buying equipment is not just an action in the bull market,” said Juri Bulovic, head of mining at Foundry. Miners are “realizing that fleet renewal is what will keep them in business after starvation.”
Miners play a crucial role in the operation of bitcoin, competing with each other to verify new transaction blocks for its blockchain and taking on the role of transaction guarantor. In return, the winner is rewarded with new tokens.
Bitcoin miners have already been pushed to the limit. Many invested during the 2020 and 2021 bull run, using debt and low interest rates to finance their expansion as the price of bitcoin soared to over $69,000. However, the rise in rates has challenged their profitability because it has significantly compressed the price of bitcoin and increased the installments of their financing. Some companies, such as Core Scientific and Computer North, filed for bankruptcy, while others were forced to temporarily shut down operations or were paid by some U.S. states not to mine bitcoin in an effort to save energy.
- Now the situation seems to have changed, and three factors are again pushing BTC to the other side:
the arrival of the new halving, “Halving.” Enthusiasts also note that the last halving, which took place in May 2020, drove the price of bitcoin up about 460 percent in the 12 months since.
- Expectations of lower rates, which will boost BTC prices,.
- Falling energy costs, which raises the prospect of greater profitability in mining.
Adding to these three structural factors are expectations for an ETF on BTC, a financial instrument that would allow the cryptocurrency’s entry into mainstream finance after more than a decade of banning it and explode demand for it.
Share prices of bitcoin miners have reacted to the rising bitcoin price: Riot Platforms is up 424 percent this year and Marathon Digital is up 681 percent. In Toronto, Bitfarms rose 607% this year, and Hive Digital Technologies rose 232%. In contrast, over the course of 2022, Riot and Marathon’s share prices fell about 85% and 90%, respectively, while Bitfarms and Hive dropped 91% and 88%.
But hopes for a resurgence still depend on the persistence of bitcoin’s recent rally. The SEC has given no indication that it will approve an ETF and end its decades-long policy of rejecting all applications.
In addition, miners are still plagued by real costs, particularly energy costs.
According to the latest figures, the median cost to mine a bitcoin is around $17,000, but it could be as high as $34,000, according to The Miner Mag. This reduces margins and increases the riskiness of all related operations.
But some see it as a risk worth taking. Among them is Bitfarms, a Canadian publicly traded group, which this month set aside $95 million for new equipment. A bet that could be a winner if prices remain high.