Bitcoin miners are likely facing narrowing profit margins even after a break in the U.S. heat wave allows them to turn rigs back on and add new machines they bought during the last bull run.
Bitcoin mining difficulty, an indicator of the amount of computing power being deployed to secure the blockchain network and earn rewards in the token, has jumped by 9.26% over the last two weeks, according to data from btc.com. The increase is the largest since January.
While the jump in mining may seen bullish for companies such as Riot Blockchain and Marathon Digital Holdings, a higher level of computing power for the entire Bitcoin network can cause miners to earn less Bitcoin with the same input. That risks further compressing profit margins -- which were once on par with those of luxury-good makers -- that have already shrunk due to Bitcoin's dramatic price decline and soaring energy costs.
"Sites are getting energized and machines that were purchased long ago are getting plugged in," said Nick Hansen, chief executive at mining services company Luxor Technologies. Marathon started energizing tens of thousands of machines in recent weeks after multiple delays earlier this year, while Core Scientific deployed at least 30,000 servers across the U.S. in the last two months.
Bitcoin miners are deploying a wave of more efficient machines. Demand for such rigs were so high during the bull run in November that major manufactures such as Bitmain could only deliver them to mining companies several months later from Asia to North America. Bitcoin has dropped about 70% from an all-time high of almost $69,000 in November.
The pullback in Bitcoin has sent the shares of miners tumbling this year. Riot has dropped 68%, is down 63% and Core Scientific has slumped 79%.
A drop in temperatures across crypto-friendly states such as Texas has also allowed miners to plug their rigs back to the power grid.
"The moderately cooler temperatures in Texas have helped increase the Texas hash rate relative to previous weeks this summer," Lee Bratcher, president of Texas Blockchain Council, said in a message to Bloomberg. "Peak energy demand in Texas is not expected to exceed what we saw in July and early August, which means the miners will likely not be needed to respond in a demand response situation in the coming weeks."
The power crunch induced by the historic heat wave in Texas in the past few months prompted nearly all major mining companies in the state to curtail their power usage. Other southern states in the U.S., which tend to have liberal regulations on crypto mining, have faced similar power shortages with high temperatures.
A consolidation among Bitcoin miners may also have contributed to the rising computing power.
"Industrial miners continue to come online in the U.S. and bolstering buildouts by taking mining rigs from unprofitable miners and putting them to better use in larger facilities," said Josh Olszewicz, head of research at digital asset fund manager Valkyrie Investments.
WASHINGTON POST