Despite Headwinds, Bitcoin Miners Are Still Buying New Hardware—Here’s Why

Between declining revenues and rising operating costs, industry experts say Decrypt Bitcoin miners continue to invest in new, specialized hardware, showing strong confidence in The future of the leading crypto network Despite the short-term struggle.

According to Glassnode Report Bitcoin's hash rate—an important measure of mining activity—remains at all-time highs, just shy of 1%, released this week. Although revenues are reduced.

The mining industry is currently facing a dual challenge: increasing mining difficulties and declining transaction fee income. As the hash rate increases, the difficulty of mining and obtaining the BTC block reward increases, thus increasing production costs.

This, coupled with the need to freeze such high-paying transactions Runes tokens and the NFT– as a TurnsIt has squeezed the profitability of miners in recent months. Still, miners continue to invest in new ASIC hardware, partly out of a need to stay competitive in an environment where older machines are quickly becoming obsolete.

One major factor driving this trend is improved energy efficiency in modern ASIC devices, which helps miners control operational costs.

talk with DecryptIlya Otychenko, a leading analyst at the crypto exchange CEX.IO, said that from 2018 to 2023, Bitcoin mining hardware will “more than double”.

This development allows mines to reduce rising electricity costs and mining problems while maintaining profitability. In unfavorable market conditions.

While the price of bitcoin has remained relatively strong, transaction fee pressure has eased, squeezing miners' profits. With transaction fee income now a small fraction of what it used to be, miners are relying more on subsidies to keep operations going.

Interestingly, miners are now changing their strategies in response to this revenue squeeze.

Historically, miners have sold most of their bitcoins to cover operating costs, but the report highlights that many now hold a portion of their mining supply in treasury. For example, Marathon Digital announced that it will do in July Use the “Full HODL” strategyStating that it will no longer sell mining BTC. In fact, he bought a lot from the market, as well.

Jeffrey Hu, head of investment research at HashKey Capital, sees this as a sign of confidence. The long-term value of Bitcoin.

“It suggests that miners who retain a portion of their supply will be banking on future price appreciation,” Hu said. Decrypt. This is a sign of confidence and can reduce selling pressure in the market, which can support prices.

However, Hu cautions that this strategy comes with risks, especially if miners are forced to sell inventory during downturns, which could exacerbate selling pressure.

Ryan Lee, principal analyst at Bitget Research, said that the old miners that were responsible for the increase in hash rate are becoming profitable again thanks to Bitcoin's price gains over the past year.

“The price of Bitcoin is bringing old machines into operation as it implements previously unprofitable hardware. This, combined with new investments in more efficient machines, will increase the overall hash rate,” says Lee.

In his latest run to return to the White House, he will come down like former President Donald Trump in support of Bitcoin and the crypto industry, with positive signs from figures like former President Donald Trump pointing to recent regulatory support in regions such as Russia. Such shifts have reduced market volatility and increased hash rate, Hu pointed out.

While these factors may help offset some of the revenue challenges, experts agree that miners must seek alternative sources of revenue to ensure long-term profitability. When Decrypt In July's Bitcoin 2024 survey of the mining landscape, it was heard that companies were. Dealing with “identity crisis”. Kind of – but it's one that can ultimately help them in the long run.

Doug Petkaniks, co-founder and CEO of LivePeer, pointed out that Bitcoin miners are well-positioned for the transition to AI computing, which requires a large amount of computing power.

“The demand for AI computing power is growing exponentially. With the current power and cooling infrastructure, miners can tap into this market by adding GPUs. Provide a new source of income” said Petkanics.

Diversity may be the key to surviving the increasingly competitive landscape of the mining industry. Companies such as Core Scientific and Bitdeer are among those offering AI computing power to address potential vulnerabilities in their Bitcoin business.

Otychenko predicts further consolidation, with capital-rich miners outnumbering smaller operations.

CleanSpark's to find Its growth strategy is highlighted by the $155 million GRIID funding in June of this year, increasing its handling capacity. Similarly, Bitfarms recently obtained A strong digital miner, Riot Platform has acquired a 19% stake in Bitfarms to influence its direction.

So are companies like Marathon Digital look out Future acquisition opportunities to maintain low cost and scalable infrastructure.

“We will see more mergers and acquisitions as large miners take on competitors struggling to expand their market share,” he said. For those unable to adapt, rising operating costs may become unsustainable, causing a shakeout in the industry.

Hu also suggests new financial products designed to protect miners from market volatility, as well as new ways for mining pools to generate additional revenue, such as integrated mining for new layer-2 solutions on Bitcoin.

“The mining industry can grow in regions such as the Middle East, where natural resources and the fast-growing crypto business offer new opportunities,” he added.

However, even with diversification, miners' profitability is heavily dependent on block rewards, which currently account for more than 90% of their revenue.

“Transaction fees only occur during price increases, as we saw with Runes and Ordinals, but such events are temporary,” Otychenko said. “Block rewards are still the main revenue driver.”

Lee echoed this sentiment, warning that miners will eventually have to rely more on transaction fees as block rewards decrease with each half-cycle. He predicted that the price of Bitcoin would rise during the next bull cycle, possibly reaching $150,000.

This attracts more retail participation in mining, as smaller players enter the market by buying older, more affordable machines.

“While large miners may shift to asset management, retail miners may generate consistent cash flow if bitcoin prices continue to rise,” he said.

Edited by Andrew Hayward and Ryan Ozawa