The largest company in mining in the world, Core Scientific, is on the verge of bankruptcy.
Core Scientific is out of BTC…
Core is the largest American miner. Its computing power allows it to generate 22.5 million TH per second, or about 5% of the hashrate total.
This colossus with feet of clay announces that its shareholders “could suffer a total loss of their investment”. The activities of the firm were “severely affected” by the fall in the price of BTC, the increase in the price of electricity and the fall in the hashprice.
Indeed, the average cost of industrial electricity has soared by 25% in the United States, from 7.5 cents per kWh in July 2021 to 9.4 cents in July 2022.
Core Scientific, which has both a hosting and mining itself, is obliged to raise its costs again. And while a hosting contract was trading around 5 to 6 cents per kWh before the energy price spike, Core Scientific’s is moving to 10 pennies.
However, as we will see, apart from the Antminer S19, all the machines see their margin completely disappear at more than 9 cents…
Taken by the throat, Mike Lewitt’s company liquidated 1,000 BTC in October. And this, after having already sold 1576 in September, 1130 in August and 1975 in July. There are only 24 BTC left in the boxes…
This purge is yet another demonstration that only miners making the effort to find the cheapest electricity survive.
Carefully follow the actions of Bitfarm and Argo miners. The two Americans also relieved of a substantial amount of BTC in recent months…
Hashprice at historic low
Core Scientific’s setbacks are not surprising given the collapse of the « hashprice “. This metric represents the daily earnings of a miner for a unit of hashrate (computing power).
More the hashprice is higher and the more money the miners earn. It is determined by three factors: the reward offered for each block, the transaction fees and, above all, the difficulty:
- The reward is fixed and currently stands at 6.25 BTC per block. That said, this reward is halved every four years (halving in one year and 175 days).
- Transaction fees have been marginal since the emergence of the Lightning Network.
- The difficulty depends on hashrate. The more miners there are, the smaller the slice of the pie.
All this to say that the sharp rise in hashrate in 2022 makes one million TH/s worth only 3.5 BTC, compared to 6.7 BTC last year. Minus 50%!
The decline in the profitability of miners is even more painful if one calculates the hashprice in dollars. That is, taking into account the 67% drop in BTC.
While the hashprice was 37.5 cents per TH/s at the end of October 2021, it is now only 7.2 cents. That’s an 80% drop in miners’ profits…
How much the juice?
The other big factor that eats away at miners’ margins is obviously the price of electricity.
Another way to illustrate the drop in miners’ income is to look at the price of electricity from which the various mining machines mining cease to be profitable.
As we can see with the following graph, the best machine on the market, the Antminer S19 XP, remains profitable up to 14 cents per kWh.
Conversely, the good old S9 need electricity costing less than 3 cents to be profitable. We are at 9 or 10 cents for the S19s which today generate the bulk of the hashrate.
Source : brains (devs who design Stratum V2)
For example, the average electricity price in Germany was 25 cents per kWh this year. In normal times, electricity costs rather 13 cents per kWh, which is already far too expensive.
Miners are therefore strongly encouraged to go abroad where electricity is very inexpensive. Typically near surplus renewable energy sources. This is why the mining of BTC already consumes 60% renewable energy.
At peak (October 2021), the most efficient Antminer (S19 Pro) had an 88% margin (with juice at 6 cents per kWh). In other words, it was enough to spend the equivalent of 0.12 BTC in electricity to obtain 1 BTC.
This margin is now closer to 35%. However, the margin of the latest Antminer S19 XP is comfortably displayed at 55%. With electricity at 2 cents per kWh, the margin increases to 165%.
Enough to make many industries green with envy. But let’s not forget that you have to buy the machines and pay the wages. In this regard, here is our article on the costs of the mining.
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