The paradoxical growth of the bitcoin hashrate against the backdrop of a collapse and stagnation of the price, the transition of Ethereum to Proof-of-Stake and the first major bankruptcy of a mining company.
We recall what else 2022 will be remembered for in the industry.
- Russia fell out of the top three in terms of the share in the bitcoin hashrate.
- The share of public companies in the computing power of the network has reached 25%.
- Rising difficulty, falling prices and the energy crisis have collapsed the income of miners.
- The industry faced the first major bankruptcy and the threat of subsequent ones.
- Ethereum abandoned mining with the transition to the Proof-of-Stake algorithm.
Bitcoin hashrate reaches new highs despite bear market
Since the beginning of the year, the bitcoin hash rate has increased by about 58% – from 172.8 EH / s to a November peak of 272.4 EH / s. After that, the indicator slightly corrected.
The U.S. remains the leader in computing power, growing to a 37.8% lead, according to the Cambridge University Center for Alternative Finance (CCAF).
Contrary to the conclusions of the organization’s previous study, the Chinese authorities failed to completely ban mining in the country. Already in September 2021, CCAF experts recorded the return of the relevant hashrate to the network, the share of which reached 21.1%.
Kazakhstan occupied the second place in the rating – 13.2%. Russia dropped out of the top three (4.7%), losing to Canada (6.5%).
The organization’s specialists presented the geographical balance of power as of January 2022. Therefore, one can only speculate how subsequent events and trends affected the hashrate migration.
Miners operating in the United States and Canada were actively increasing their capacities. Kazakhstan is facing a serious outflow of industry representatives due to problems with energy supply and proposed amendments to tax laws. It was about the relocation of up to 30% of the equipment from the country.
The activities of Russian companies were affected by the sanctions, although at the end of the year experts noted an increase in demand for mining installations.
In terms of pools, Foundry USA remained the leader, which increased its share in the bitcoin hash rate from 17% to 26.45% over the year. The structure continued to dominate, despite the financial problems that arose from the parent company Digital Currency Group.
Behind it are AntPool, F2Pool and Binance Pool. These platforms have also increased capacity. For example, the share of AntPool has increased by almost 5% since January. As a result, the top four pools controlled 75% of the bitcoin hashrate.
Hashrate Index analyst Jaran Mellerud attributed the paradoxical growth in network computing power against the backdrop of a bear market to the investments of public miners in equipment during last year’s bull cycle. The share of such players in the hash rate increased from 10% to 25% in 12 months.
Capriole Investments founder Charles Edwards offered an alternative view. The expert expressed confidence that the hashrate maximums in such unfavorable market conditions are explained by the tacit entry into mining of large oil and gas companies.
As the power of the network grew, correlated mining difficulty reached new record levels. At the end of November, the indicator reached a historical maximum of 36.95 tons.
Miners are facing a problem with servicing loans
The rise in difficulty, the fall in the price of bitcoin, and the increase in fees due to the energy crisis put serious pressure on the profitability of mining during the year. The income of sector players decreased to $461 million by November ($1.2 billion in January).
In November, hashprice hit an all-time low near $0.058 per 1TH/s. The metric shows the income of miners per unit of computing power spent.
At the beginning of the summer, public miners liquidated a significant part of the accumulated reserves in cryptocurrency. Despite this, Arcane Research considered their financial position to be stable.
In September, the industry faced its first major bankruptcy. Compute North, a private mining company and infrastructure provider, filed for insolvency.
Already in October, the public Core Scientific warned of the risk of depleting financial reserves before the end of the year and possible bankruptcy. In December, the company applied for Chapter 11 creditor protection to reorganize the business.
The Hashrate Index noted that the firm’s problems are understandable. The experts analyzed the ratio of debt load and liquid assets of the largest public miners. At Core, the indicator turned out to be an order of magnitude higher than that of the others – 24.
The British Argo Blockchain also announced a possible suspension of operations due to lack of funding. She had a corresponding score of 3.1. According to the metric, Greenidge and Stronghold are potentially at risk.
During the 2021 bull market, companies actively took out loans to buy equipment, in many cases secured by it. Bloomberg estimated the volume of debts at risk of liquidation at $4 billion.
The largest lenders were NYDIG, Celsius Network, BlockFi, Galaxy Digital and Foundry, according to the agency. Throughout the year, some miners began to return tens of thousands of installations, unable to service the debt.
Events unfolded against the backdrop of a rapid fall in equipment prices – more than 80% throughout the year. According to the Hashrate Index, in January, devices with energy efficiency above 38 J / TH cost about $ 101, by the end of the year the figure dropped to $18. Foundry confirmed this assessment.
The payback periods of units purchased at peak prices in the current market conditions have increased significantly. Experts have calculated that it will now take about 9 years to return the cost of the Antminer S19j Pro purchased in January.
Intel entered the mining ASIC market
The bear market also hit mining equipment manufacturers. At the end of the third quarter, Canaan reported a net profit of $8.6 million. The indicator collapsed by 90% compared to the previous period.
At the same time, Chairman and CEO Nangeng Zhao emphasized that the drop in revenues was due to price adjustments under existing contracts – the company fulfilled the planned physical sales volumes.
During 2022, Canaan managed to introduce two new lines of bitcoin miners. For the flagships of the 12th series, the declared energy efficiency was 35 J / TH, for the top devices of the 13th series – already 25 J / TH.
In April, MicroBT presented the Whatsminer M50 line. The relevant characteristic of the leading miner M50S was 26 J/TH.
Bitmain has continued to expand its offering of S19 series models. Its flagship delivers an energy efficiency of 21.5 J/TH.
According to analysts, the transition to more efficient hardware has become one of the factors in the growth of the bitcoin hash rate in 2022. At the same time, the power consumption of the network fell over the period from ~9500 MW to ~8400 MW, according to Hashrate index.
Against this backdrop, a new potentially major player, American Intel, has entered the sector of mining equipment manufacturers, dominated by the above-mentioned Chinese companies.
In February, the corporation introduced the Bonanza Mine chip for mining the first cryptocurrency. The presentation was purely technical, but the experts paid attention to the declared energy efficiency – only 55 J / TH.
One of the first customers of the chip was GRIID Infrastructure. The latter, in documents for the SEC, revealed that it plans to receive devices from Intel with much higher characteristics – 26 J / TH.
In April, Intel confirmed that the figure is in line with the second generation of a device called Blockscale.
In July, the corporation announced the start of deliveries of chips to the first customers. They also included Argo Blockchain, Block and HIVE Blockchain. The latter received its first 262 installations in November.
Ethereum switched to Proof-of-Stake. Altcoins failed to accept all miners
On September 15, the developers activated a large-scale update of The Merge in the Ethereum network. The blockchain switched to the Proof-of-Stake (PoS) consensus algorithm.
According to 2Miners, the network hashrate at that time was about 740 TH / s. Some of the miners of the second-largest cryptocurrency by capitalization, as expected, switched to altcoins that can be mined using GPUs.
The Ethereum Classic network benefited greatly from the influx, with capacities jumping from 55 TH/s to 290 TH/s. Against the backdrop of migration, the hashrate of coins like Ravencoin, Ergo, and Beam has also grown.
However, soon the miners began to disconnect equipment from new networks. Obviously, for many, the extraction of altcoins was not profitable enough to cover the costs. By the end of September, the media reported a sharp drop in prices for video cards in China.
Ethereum Classic hashrate has stabilized since October in the range of 150-130 TH/s with a downward trend. A similar trend was shown by other networks that experienced an influx of players after The Merge.
The Ethereum PoW fork, which was launched not without problems, turned out to be completely unattractive for miners. At the peak on September 15, the network capacity reached 68 TH/s, by the end of the year the figure fell below 19 TH/s.
Conclusion
According to Hashrate Index experts, the current crypto winter has not become a more difficult test for bitcoin miners than the previous ones. For example, during the bearish phase of 2020, revenue per kWh dropped to $0.083. Now the minimum is fixed at $0.108 (with half the duration of the incomplete cycle).
Analysts believe that North American miners will further increase their share in the hash rate of the first cryptocurrency. Regional players continue to receive thousands of batches of contracted modern equipment and develop infrastructure.
The weight of public companies in the total is also likely to grow. However, this process will slow down – since the beginning of the year, the shares of companies traded on the stock exchange have lost up to 90% of their value. This will make it difficult for them to access additional funding.
But for some companies, the crypto winter has become an opportunity to acquire the assets of competitors (CleanSpark, Crusoe, Foundry and others) at a significant discount or at minimal cost to increase the hashrate due to discounts from equipment manufacturers (for example, TeraWulf). This will inevitably lead to the consolidation of the industry by strong players.
According to many experts, the bear market will end in the spring of 2023. This is also indicated by the duration of similar previous periods. The industry will have time to prepare for the next Bitcoin halving, which will take place in 2024.
Read Cryplogger bitcoin news in our Telegram – Cryptocurrency news, courses and analytics.
Found a mistake in the text? Select it and press CTRL+ENTER
Cryplogger Newsletters: Keep your finger on the pulse of the bitcoin industry!
The paradoxical growth of the bitcoin hashrate against the backdrop of a collapse and stagnation of the price, the transition of Ethereum to Proof-of-Stake and the first major bankruptcy of a mining company.
We recall what else 2022 will be remembered for in the industry.
- Russia fell out of the top three in terms of the share in the bitcoin hashrate.
- The share of public companies in the computing power of the network has reached 25%.
- Rising difficulty, falling prices and the energy crisis have collapsed the income of miners.
- The industry faced the first major bankruptcy and the threat of subsequent ones.
- Ethereum abandoned mining with the transition to the Proof-of-Stake algorithm.
Bitcoin hashrate reaches new highs despite bear market
Since the beginning of the year, the bitcoin hash rate has increased by about 58% – from 172.8 EH / s to a November peak of 272.4 EH / s. After that, the indicator slightly corrected.
The U.S. remains the leader in computing power, growing to a 37.8% lead, according to the Cambridge University Center for Alternative Finance (CCAF).
Contrary to the conclusions of the organization’s previous study, the Chinese authorities failed to completely ban mining in the country. Already in September 2021, CCAF experts recorded the return of the relevant hashrate to the network, the share of which reached 21.1%.
Kazakhstan occupied the second place in the rating – 13.2%. Russia dropped out of the top three (4.7%), losing to Canada (6.5%).
The organization’s specialists presented the geographical balance of power as of January 2022. Therefore, one can only speculate how subsequent events and trends affected the hashrate migration.
Miners operating in the United States and Canada were actively increasing their capacities. Kazakhstan is facing a serious outflow of industry representatives due to problems with energy supply and proposed amendments to tax laws. It was about the relocation of up to 30% of the equipment from the country.
The activities of Russian companies were affected by the sanctions, although at the end of the year experts noted an increase in demand for mining installations.
In terms of pools, Foundry USA remained the leader, which increased its share in the bitcoin hash rate from 17% to 26.45% over the year. The structure continued to dominate, despite the financial problems that arose from the parent company Digital Currency Group.
Behind it are AntPool, F2Pool and Binance Pool. These platforms have also increased capacity. For example, the share of AntPool has increased by almost 5% since January. As a result, the top four pools controlled 75% of the bitcoin hashrate.
Hashrate Index analyst Jaran Mellerud attributed the paradoxical growth in network computing power against the backdrop of a bear market to the investments of public miners in equipment during last year’s bull cycle. The share of such players in the hash rate increased from 10% to 25% in 12 months.
Capriole Investments founder Charles Edwards offered an alternative view. The expert expressed confidence that the hashrate maximums in such unfavorable market conditions are explained by the tacit entry into mining of large oil and gas companies.
As the power of the network grew, correlated mining difficulty reached new record levels. At the end of November, the indicator reached a historical maximum of 36.95 tons.
Miners are facing a problem with servicing loans
The rise in difficulty, the fall in the price of bitcoin, and the increase in fees due to the energy crisis put serious pressure on the profitability of mining during the year. The income of sector players decreased to $461 million by November ($1.2 billion in January).
In November, hashprice hit an all-time low near $0.058 per 1TH/s. The metric shows the income of miners per unit of computing power spent.
At the beginning of the summer, public miners liquidated a significant part of the accumulated reserves in cryptocurrency. Despite this, Arcane Research considered their financial position to be stable.
In September, the industry faced its first major bankruptcy. Compute North, a private mining company and infrastructure provider, filed for insolvency.
Already in October, the public Core Scientific warned of the risk of depleting financial reserves before the end of the year and possible bankruptcy. In December, the company applied for Chapter 11 creditor protection to reorganize the business.
The Hashrate Index noted that the firm’s problems are understandable. The experts analyzed the ratio of debt load and liquid assets of the largest public miners. At Core, the indicator turned out to be an order of magnitude higher than that of the others – 24.
The British Argo Blockchain also announced a possible suspension of operations due to lack of funding. She had a corresponding score of 3.1. According to the metric, Greenidge and Stronghold are potentially at risk.
During the 2021 bull market, companies actively took out loans to buy equipment, in many cases secured by it. Bloomberg estimated the volume of debts at risk of liquidation at $4 billion.
The largest lenders were NYDIG, Celsius Network, BlockFi, Galaxy Digital and Foundry, according to the agency. Throughout the year, some miners began to return tens of thousands of installations, unable to service the debt.
Events unfolded against the backdrop of a rapid fall in equipment prices – more than 80% throughout the year. According to the Hashrate Index, in January, devices with energy efficiency above 38 J / TH cost about $ 101, by the end of the year the figure dropped to $18. Foundry confirmed this assessment.
The payback periods of units purchased at peak prices in the current market conditions have increased significantly. Experts have calculated that it will now take about 9 years to return the cost of the Antminer S19j Pro purchased in January.
Intel entered the mining ASIC market
The bear market also hit mining equipment manufacturers. At the end of the third quarter, Canaan reported a net profit of $8.6 million. The indicator collapsed by 90% compared to the previous period.
At the same time, Chairman and CEO Nangeng Zhao emphasized that the drop in revenues was due to price adjustments under existing contracts – the company fulfilled the planned physical sales volumes.
During 2022, Canaan managed to introduce two new lines of bitcoin miners. For the flagships of the 12th series, the declared energy efficiency was 35 J / TH, for the top devices of the 13th series – already 25 J / TH.
In April, MicroBT presented the Whatsminer M50 line. The relevant characteristic of the leading miner M50S was 26 J/TH.
Bitmain has continued to expand its offering of S19 series models. Its flagship delivers an energy efficiency of 21.5 J/TH.
According to analysts, the transition to more efficient hardware has become one of the factors in the growth of the bitcoin hash rate in 2022. At the same time, the power consumption of the network fell over the period from ~9500 MW to ~8400 MW, according to Hashrate index.
Against this backdrop, a new potentially major player, American Intel, has entered the sector of mining equipment manufacturers, dominated by the above-mentioned Chinese companies.
In February, the corporation introduced the Bonanza Mine chip for mining the first cryptocurrency. The presentation was purely technical, but the experts paid attention to the declared energy efficiency – only 55 J / TH.
One of the first customers of the chip was GRIID Infrastructure. The latter, in documents for the SEC, revealed that it plans to receive devices from Intel with much higher characteristics – 26 J / TH.
In April, Intel confirmed that the figure is in line with the second generation of a device called Blockscale.
In July, the corporation announced the start of deliveries of chips to the first customers. They also included Argo Blockchain, Block and HIVE Blockchain. The latter received its first 262 installations in November.
Ethereum switched to Proof-of-Stake. Altcoins failed to accept all miners
On September 15, the developers activated a large-scale update of The Merge in the Ethereum network. The blockchain switched to the Proof-of-Stake (PoS) consensus algorithm.
According to 2Miners, the network hashrate at that time was about 740 TH / s. Some of the miners of the second-largest cryptocurrency by capitalization, as expected, switched to altcoins that can be mined using GPUs.
The Ethereum Classic network benefited greatly from the influx, with capacities jumping from 55 TH/s to 290 TH/s. Against the backdrop of migration, the hashrate of coins like Ravencoin, Ergo, and Beam has also grown.
However, soon the miners began to disconnect equipment from new networks. Obviously, for many, the extraction of altcoins was not profitable enough to cover the costs. By the end of September, the media reported a sharp drop in prices for video cards in China.
Ethereum Classic hashrate has stabilized since October in the range of 150-130 TH/s with a downward trend. A similar trend was shown by other networks that experienced an influx of players after The Merge.
The Ethereum PoW fork, which was launched not without problems, turned out to be completely unattractive for miners. At the peak on September 15, the network capacity reached 68 TH/s, by the end of the year the figure fell below 19 TH/s.
Conclusion
According to Hashrate Index experts, the current crypto winter has not become a more difficult test for bitcoin miners than the previous ones. For example, during the bearish phase of 2020, revenue per kWh dropped to $0.083. Now the minimum is fixed at $0.108 (with half the duration of the incomplete cycle).
Analysts believe that North American miners will further increase their share in the hash rate of the first cryptocurrency. Regional players continue to receive thousands of batches of contracted modern equipment and develop infrastructure.
The weight of public companies in the total is also likely to grow. However, this process will slow down – since the beginning of the year, the shares of companies traded on the stock exchange have lost up to 90% of their value. This will make it difficult for them to access additional funding.
But for some companies, the crypto winter has become an opportunity to acquire the assets of competitors (CleanSpark, Crusoe, Foundry and others) at a significant discount or at minimal cost to increase the hashrate due to discounts from equipment manufacturers (for example, TeraWulf). This will inevitably lead to the consolidation of the industry by strong players.
According to many experts, the bear market will end in the spring of 2023. This is also indicated by the duration of similar previous periods. The industry will have time to prepare for the next Bitcoin halving, which will take place in 2024.
Read Cryplogger bitcoin news in our Telegram – Cryptocurrency news, courses and analytics.
Found a mistake in the text? Select it and press CTRL+ENTER
Cryplogger Newsletters: Keep your finger on the pulse of the bitcoin industry!
