What We Learned About Bitcoin Mining in 2022

In 2022, Bitcoin miners faced significant challenges due to rising energy and hosting costs. The impact of energy price inflation has compressed mining margins, while hosting costs have ballooned. In this blog post, we will take a closer look at how these factors have affected Bitcoin mining and hosting, and what we can expect in the future.

Impact of Energy Price Inflation: Energy price inflation has pushed many miners to the brink of breakeven or outright unprofitability. The average US industrial electricity price of $93 per MWh is now above the S19 Pro’s $92 revenue per MWh. Even miners with run-of-the-mill power prices who were running new-gen hardware were close to breakeven by the end of 2022.

The depressed state of mining economics appears even worse when compared to the market environment of late 2021, when even running an S9 at the average US industrial electricity price was extremely profitable. Only miners operating the latest generation machines are cash flow positive at the average US industrial electricity price.

Impact of Rising Hosting Costs: Hosting costs have also risen due to energy price inflation. Before 2022, a reasonable hosting contract might offer power prices at $0.05-$0.06/kWh. Now, it’s not uncommon to see $0.08-0.09/kWh, and many hosting contracts are switching from the standard ‘all-in’ hosting terms to profit/revenue sharing models.

In 2021, plenty of miners and hosting providers failed to lock in fixed power purchasing agreements, or they didn’t fully understand the variable rates in their contracts. These oversights spelled disaster for certain firms, which were forced to file for bankruptcy after power rate hikes put their hosting revenue in the red.

Impact on Mining Economics: The chart below shows the break-even electricity price of mining with different machines, compared with the average industrial electricity price in the US. The analysis of hosting rates from Luxor’s ASIC Trading Desk and Hashbranch indicates that the rates for the majority of hosting providers put miners at breakeven thresholds or underwater for even new-gen machines like the S19j Pro.

The current state of mining economics is challenging, and miners need to carefully assess their options and costs. Despite these challenges, we expect hosting services to expand further in 2023 as self-mining companies who lack the capital to fill a facility with their own rigs turn to hosting services to fill up the space.

Conclusion: Bitcoin mining faces significant challenges in the form of rising energy and hosting costs. While these challenges have made mining less profitable, we expect hosting costs to fall in 2023 as a result of the expansion in capacity. Miners need to be careful in assessing their options and costs, and choose their hosting providers carefully. In a market that is becoming increasingly competitive, it is more important than ever to make smart decisions that can help you stay ahead of the curve.