Bitcoin’s Hashrate Skyrockets : Is A Mining Crisis Looming ?

The Bitcoin network continues to surprise. While analysts expected a slowdown in hashrate after the April 2024 halving, the computing power mobilized by mining companies has just reached a historic high of 833 exahashes per second (EH/s), up 9 % in just a few days. This surge in power is explained by massive investments from mining companies, which anticipated the reduction of block rewards by strengthening their infrastructure. However, a surprising contrast arises: despite a price that hovers around $100,000, transaction fees are hitting historically low levels, which undermines the profitability of mining companies and raises questions about the economic balance of the network.

A growth in hashrate driven by massive investments

Data from Glassnode confirms a continuous increase in the Bitcoin hashrate over the past months, indicating a constant strengthening of the computing power that secures the network. This change is attributed to substantial institutional investments, particularly in acquiring new mining equipment. As the April 2024 halving approaches, many specialized companies have bolstered their infrastructure to maintain competitiveness in light of reduced block rewards.

However, this dynamic seems to mark a significant turning point. After a spike in pre-orders for equipment ahead of the halving, orders are beginning to slow down, suggesting a potential exhaustion of hashrate growth. Simultaneously, operational costs are increasing, particularly due to a projected 6 % rise in mining difficulty in the coming days. This new increase will further complicate the situation for the least efficient mining companies, which are already facing declining revenues from transaction fees and an increasingly competitive environment.

A market under pressure between low profitability and strain on mining companies

The increase in hashrate is accompanied by an unprecedented drop in transaction fees, a phenomenon that questions the profitability of mining companies. Currently, the cost of a priority transaction has fallen to just $0.69 (5 sat/vB), a level rarely reached in recent years. This decline is explained by limited mempool congestion, reducing competition for transaction inclusion in blocks. Consequently, although the network’s computing power reaches records, the revenues of mining companies from transaction fees remain at their lowest level, putting pressure on the most vulnerable players.

This situation reveals a structural flaw in the economic model of Bitcoin. As mining rewards decrease after each halving, miners must rely increasingly on transaction fees to ensure their profitability. However, the current trend shows that this transition is struggling to take place. If operational costs, particularly those related to energy and equipment, continue to rise, some mining companies may no longer be able to cover their expenses. A wave of closures would then lead to a gradual reduction in network power, potentially affecting its security and resilience against potential attacks.

The rapid rise in hashrate confirms that Bitcoin mining has become an ultra-competitive industry, supported by massive investments. However, the decline in revenues from transaction fees and the imminent rise in mining difficulty threaten to disrupt the balance of the sector. If profitability continues to erode, the least efficient mining companies may be forced to cease operations, leaving more room for large industrial infrastructures. This consolidation would further centralize mining, raising issues regarding decentralization and network security. Upcoming market adjustments and changes in mining operational difficulty will be crucial in measuring the resilience of players in the face of these new economic constraints.