Profitability of Bitcoin miners under threat as hash rate hits new all-time high

Analysts say Bitcoin miners' worst days are likely behind them, but the network's soaring hash rate and the rising difficulties are weighing on profit margins.

Market analysis

Bitcoin hash rate hit a new all-time high above 245 exahashes per second on Oct. 3, but at the same time Bitcoin (BTC) miner profitability is near all-time lows .

With prices in the $20,000 range and an estimated network-wide production cost of $12,140, ​​Glassnode's analysis suggests "miners are somewhat on the cusp of acute financial difficulties".

Bitcoin network hash rate. Source: Hashrate Index

Generally, difficulty, a measure of how "difficult" it is to mine a block, is a factor in determining the production cost of mining Bitcoin. A higher difficulty means that extra computing power is needed to mine a new block.

Using a difficulty regression model, the data shows an R2 of 0.944, and the last time the model showed signs of miner distress was during the BTC runout at $17,840. Currently, it is hovering around $18,300, which is not far from the price range seen over the past two weeks.

Bitcoins difficulty regression model. Source: Glassnode

Hash rate hitting a new all-time high effectively means miner margins will be squeezed even further. Outfits that are not profitable can either trade at a loss, assuming the future price of BTC will eventually make up the cost difference, or they can unplug and wait for difficulty to decrease or energy costs to improve.

With the recent increase in hash rate, the difficulty should also increase next week, with estimates pointing to a 6%-10% adjustment.