Analyzing The Impact Of Miners’ Actions On Bitcoin And Market Prices

12/27/2023 0 Comments

1. Analyzing The Impact Of Miners’ Actions On Bitcoin And Market Prices

In 2023, the crypto mining witnessed crucial regulations, macro shifts, and robust strategies for the anticipated 2024 Bitcoin halving. This report presents an in-depth analysis of the year’s market trends, miner behavior, and pivotal on-chain indicators. Amidst regulatory changes and mining technologies, we explore how miners went through the volatile market, adapted to energy efficiencies, and responded to profitability challenges.

The upcoming Bitcoin halving, a critical event with historical market impacts, looms large as miners strategize for 2024. Through data-driven insights, this report aims to offer a snapshot of the crypto mining sector in 2023.

Market Sentiment And Miners’ Behavior

During the bear market’s peak in late 2022, crypto mining was in a dire state. Miners were struggling as profits vanished and equity values plummeted. Twitter polls indicated less than half of bitcoin miners would survive, a prediction seemingly validated when Core Scientific filed for bankruptcy, marking a significant industry downturn.

However, this period attracted opportunists. Binance began lending to struggling firms, while Jihan Wu’s Bitdeer created a $250 million fund for distressed assets. With bitcoin’s rebound above $20,000 in early 2023 and the rising ETF hope fuelling a surge toward $45K, miners are pushing the bitcoin hashrate to new highs.

Reflecting this recovery, mining companies saw substantial gains year to date in market cap: Hive Blockchain (+273%), Riot (+547%), Canaan (+53%), Bit Digital (+615%), and Marathon (+1388%).

Bitcoin Mining Profitability Touches New High

This year marked a significant uplift in profitability for Bitcoin miners, with mining revenues hitting the highest point of 2023. The hashprice, a key metric for valuing miners’ computational power, climbed to $133.6 per petahash (PH) per day, a notable rise from the recent low of $60/PH/day.

This increase means that for every petahash of mining capacity, miners can now anticipate daily revenues of $133. To contextualize, 1 petahash equates to about 10 standard Bitcoin mining machines. Therefore, a single typical mining ASIC, such as the S19j Pro, is now generating approximately $13.3 per day at the current hashprice.

Putting technical terms aside, the recent boost in Bitcoin mining revenue is not just because of the slight uptick in Bitcoin’s price, which rose about 5% over the last week. More significantly, it’s due to a considerable increase in Bitcoin transaction fees as its value peaked at 38.

Mining Difficulty Reaches All-time High

With the rising profitability, the mining difficulty has also touched a new high. The mining difficulty of Bitcoin reached an all-time high at block height 822,528. This significant jump of 7% is the largest increase witnessed in nine months, dating back to March 23. With this rise, the process of discovering block rewards has become more challenging than ever before, as the difficulty level hit a record-breaking 72.01 trillion.

With the difficulty level now set at 72 trillion, Bitcoin miners are faced with the challenge of producing a hash value below this mark to successfully mine a new block. Following the recent 7% increase in difficulty, the next adjustment is expected to occur around January, 2024.

With the rise in mining difficulty, the network’s overall computational power, or hashrate, has also soared to new levels. As of December 25, 2023, the Bitcoin network reached a new peak. According to data from Luxor’s hashrateindex.com, the seven-day simple moving average (SMA) of Bitcoin’s hashrate has reached 545 exahashes per second (EH/s), setting a new all-time high.

This increase in hashrate follows the notable growth in Bitcoin mining activities. During 2023, the top three manufacturers specializing in application-specific integrated circuits (ASICs) introduced their advanced next-generation mining rigs. Mining groups have rapidly integrated these robust machines into their infrastructure, greatly enhancing efficiency, especially in terms of joules per terahash.

Miners’ Activities Helped Bitcoin To Touch $45K

In 2023, Bitcoin miners saw their average daily income from transaction fees reach nearly $2 million, representing an impressive 400% increase compared to the previous year.

This notable increase in income highlights the rising demand and utilization of the Bitcoin network and significantly boosts the profitability of mining activities.

The increased earnings for miners are important in plunging the tendency to sell Bitcoin. With higher profits, miners might be less compelled to sell their newly created coins instantly to offset operational expenses. This decrease in selling pressure helps create a more equilibrium state between supply and demand in the market.

Such a scenario has had significant implications for Bitcoin’s price in 2023. As miners retain a greater portion of their newly minted coins, the reduced supply available in the market may set the stage for potential price increases.

With miners selling less and continuous demand, the conditions are favorable for further growth in Bitcoin’s price.

Miners Ahead Of Next Halving

As the Bitcoin halving in April 2024 nears, miners are intensively preparing by studying past halvings and market reactions. The halving will cut block rewards from 6.25 to 3.125 bitcoins, doubling mining costs per bitcoin. Miners are mitigating this by adopting more efficient machines and optimizing energy use, building cash reserves, and hedging market risks.

Key strategies include upgrading to efficient hardware. Marathon Digital acquired 78,000 Antminer S19 XPs, boosting their hash rate to 23 EH/s by mid-2023. CleanSpark’s 45,000 Antminer S19 XPs will add 6.3 EH/s, targeting 16 EH/s by year-end. Riot Platforms purchased 33,280 MicroBT miners, increasing capacity to 20.1 EH/s in 2024.

Energy cost is crucial. Miners aim for cheap, sustainable energy and flexible contracts to adjust usage as prices fluctuate. CleanSpark is automating operations for optimal energy use in Georgia. Texas miners like Riot Platforms are utilizing energy strategies in the ERCOT market to increase revenue, earning millions through power sales and demand response programs.

Conclusion

In 2023, the crypto mining sector saw major developments ahead of the 2024 Bitcoin halving, including regulatory changes and strategic moves. Miners rebounded from the previous year’s downturn, investing in efficient technologies and boosting profitability. This led to a higher mining difficulty and network hashrate. Miners’ increased earnings helped balance Bitcoin’s supply-demand dynamics, positively impacting its price.

While the current data indicates a bullish sentiment and behavior among miners, there is an anticipation of a significant change as the halving event approaches. Additionally, the reserves of miners for both Litecoin and Bitcoin have been decreasing in recent months, coinciding with the recovery of the crypto market. This trend has led to increased selling among miners.

We may observe an uptick in miners selling their holdings during market price rallies, which could provide the necessary selling pressure for those holding short positions.

2. Bitcoin’s Hash Rate Jumps 193% in 2023

As the crypto community embraced the holiday spirit, Bitcoin’s computing power, commonly referred to as its hash rate, reached unprecedented levels. On December 23, the dominant crypto achieved an average hash rate peak of 614 exahashes per second [EH/s], marking a remarkable increase since January. Bitinfocharts data revealed that hash rates in the Proof of Work [PoW] network more than doubled, escalating by a staggering 193% [yearly] and 343% this cycle.

During the same period, Bitcoin’s mining difficulty reached a new peak at a block height of 822,528, experiencing a substantial 7% increase—the most significant surge in nine months since March 23. This surge resulted in a record difficulty level of 72.01 trillion, making block rewards more challenging to obtain than ever before.

Although BTC’s price closely mimicked the chart, surging over 160% since January 1, 2023, the flagship token maintained stability within the range of $44,000 and $43,000 from December 21 to 25. Market analysts attribute this trend to a shift in retail focus towards the frenzy in altcoin markets. At press time, BTC is trading at $42.6k.

As of December 24, around 50 mining pools contribute SHA256 hash rates to the BTC network. Leading the pack is Foundry USA, contributing 32.3% [173.5 EH/s] of the total hash rate, followed by Antpool at 27% [144.8 EH/s]. Together, these two pools have controlled nearly 60% of Bitcoin’s aggregate hash rate over the last three days.

Bitcoin Mining Rigs Pours $600M

With just over 17,000 blocks remaining until the anticipated halving event, expected around the end of March or the beginning of April 2024, this surge in hash rate aligns with a significant expansion in Bitcoin mining operations. In 2023, the top three application-specific integrated circuit [ASIC] manufacturers introduced their latest next-generation mining rigs. Mining entities aggressively adopted these machines, significantly improving efficiency in terms of joules per terahash.

A report by The Financial Times highlighted a notable investment surge, with publicly listed mining companies spending $600 million on new machinery in December and a total of $1.3 billion on ASIC acquisitions throughout the year, according to data from The Miner Mag.

3. Bitcoin Miners Transaction Revenue Clocks 400% YoY Surge in 2023

Bitcoin (BTC) miners in 2023 have collected a daily average of $2 million in transaction fee revenue, according to data from Coinmetrics.

The value reportedly showcases a 400% increase compared to last year’s averages.

Bitcoin Miners Revenue Increases Year Over Year

According to a Dec. 23 post on X (formerly Twitter) made by Jameson Lopp, the Co-founder and CTO of BTC self-custody solutions company Casa, Bitcoin miners generated revenue exceeding $10 billion in 2023, adding to the total of $57 billion collected in the past 15 years.

In the post, Loop reckoned the estimation could mean miners immediately convert Bitcoin to fiat currency. However, he said it was improbable that was the case, as miners often embrace “HODLing” onto their Bitcoin asset for potential long-term gains.

This month, miners’ total daily revenue block rewards and transaction fee revenues clocked an annual high of $64 million, almost a 400% increase from its year-to-date value, per data from Ycharts. Since the start of December, the daily mining activity revenue hasn’t dropped below $33.85M, signifying a large profit intake for miners in Q4 2023.

Coin Metrics also revealed the quarterly mining revenues in 2023 surpassed $2B over the last three-quarters of the year, with transaction fees collected by miners climbing over $180M in Q2 and Q4.

Mining Hashrate and Difficulty Soar as Profitability Woes Rise

In 2023, the Bitcoin network witnessed a massive surge in mining hashrate. According to Coin Metric’s State of the Network Q4 2023 Mining report, the hashrate jumped from 250 Exahashes per second (EH/s) at the start of the year to 480 EH/s.

The rise in hashrate has led to a 26% increase in Bitcoin mining difficulty over the past three months, per Coinwarz data.

With the rise in BTC mining hashrate and difficulty, profitability could take a slump, and the upcoming halving event may spell even more woes for miners overall, as the event is set to slash rewards from the current 6.25 to 3.125.

However, experts believe Bitcoin’s halving may subsequently decelerate the fast-rising mining difficulty. Furthermore, the rising hashrate showcases improving network security, which may rapidly help BTC’s price charge toward the bull market.

Earlier this month, CryptoQuant Chief Researcher Julio Moreno posted on X that the Bull-Bear market cycle indicator is signaling a recent transition into a bullish period for the first time since July. Based on the indicator, Moreno believes block rewards will increase faster than mining difficulty, increasing miners’ profitability despite the heightening mining difficulty.