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CoinShares Report: Bitcoin Halving Increases Mining Cost to $37,800, Only 5 Mining Companies Profitable

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CoinShares Report: Bitcoin Halving Increases Mining Cost to $37,800, Only 5 Mining Companies Profitable

The asset management company CoinShares recently released a mining report, analyzing the impact of the Bitcoin halving event on hash rate and miners' cost structures. The report indicates that after the halving, the average cost of Bitcoin for miners will be $37,856. Furthermore, if the price remains below $40,000 in the long term, only 5 mining companies will be able to operate profitably.

Estimated Average Mining Output Cost: $37,856

As the halving day, less than 90 days away, approaches, CoinShares predicts that the average cost of Bitcoin mining output will reach $37,856, based on a comprehensive assessment of data such as mining difficulty and hash rate efficiency.

CoinShares: Average Cost of Bitcoin Mining Output

Previously, between February and May 2020, 90 days before the last halving, the average cost of mining output for each Bitcoin was around $7,600 to $7,900.

Macromicro: Historical Average Cost of Bitcoin Mining Output

CoinShares states that in certain phases of the Bitcoin mining cycle, if the total network hash rate significantly increases, the mining difficulty will rise to maintain a stable Bitcoin production rate.

However, miners with higher cost curves will start to incur losses, and due to the inability to withstand the rising mining difficulty, they will exit the market, leading to a decrease in hash rate:

Our analysis focuses on the different cost structures of mining companies and which miners are most likely to be impacted by the halving event in April 2024.

Current Structural Issues of Mining Companies

CoinShares also points out the operational issues of major mining companies, stating that their focus on bulk purchasing new mining machines to obtain more Bitcoins efficiently is a short-term solution without addressing the root cause:

Most miners are increasing their overall efficiency W/T, but their fundamental cost structure has not improved. After the halving, even with new equipment purchases, miners still need to increase their electricity consumption and energy usage to mine the same amount of Bitcoins.

Top 5 Surviving Mining Companies

Data and Evaluation Methodology

Furthermore, CoinShares evaluated the business and operational models of 14 mining companies based on data from the U.S. SEC and respective companies' income statements, summarizing the impact of the halving on Bitcoin mining companies.

  1. Costs and Expenses: Main cost expenditures of mining, primarily involving electricity costs, hash rate efficiency, and Bitcoin production.

  2. SG&A: Mainly sales, general, and administrative expenses excluding non-cash expenses such as stock-based compensation or one-time payments.

  3. Interest Expenses: Only considering debt interest, excluding lease costs or other financial expenses.

The company highlights that the primary issue faced by miners is electricity costs, typically accounting for 68% to 71% of the total cost structure; followed by SG&A costs:

For miners to achieve breakeven, the halving may force them to reduce SG&A costs to avoid continued losses, while also having to liquidate their Bitcoin balances and other liquid assets.

TeraWulf and CleanSpark Most Promising Mining Companies

In conclusion, CoinShares' analysis suggests that mining companies Riot, TeraWulf, and CleanSpark are in the best position to handle the expected cost increase crisis during the upcoming halving event.

Cost Consumption Chart | Blue: Electricity and Energy Consumption, Black: Interest Expenses, Green: SG&A Costs

However, CoinShares acknowledges that risks still exist:

Unless the Bitcoin price remains above $40,000, we believe only Bitfarms, Iris, CleanSpark, TeraWulf, and Cormint will be able to sustain profits.

Additionally, "all other miners may gradually sell off liquid assets or even be forced to raise capital through new stock issuances or debt conversions, leading to further stock dilution."

Continuous Outflow of Funds from Bitcoin Miners

Currently, benefiting from the anticipated approval and explosive excitement of the Bitcoin spot ETF, market sentiment and Bitcoin prices are soaring, resulting in profits for Bitcoin mining companies.

Just before the approval of the Bitcoin ETF, the share of Bitcoin miners in on-chain trading volume reached its highest level since October 2019, at 21.49%.

However, on the other hand, the total amount of Bitcoin produced and held by Bitcoin miners continues to decrease and flow out.

CryptoQuant data shows that the daily outflow on January 12 reached 61,389 Bitcoins, hitting a new high in over three years.

Mining company F2Pool analyst Bradley Park stated that due to the increasing operational costs and expenditures faced by Bitcoin mining companies and miners, they are transferring the mined Bitcoins to exchanges.

He also added that while this is often seen as a sign of an impending price drop, the actual correlation between the two is not clear.