Bitcoin miners are scaling back production, as falling cryptocurrency prices and rising energy costs squeeze their profits and send their shares tumbling, the Financial Times reported On Monday.
Bitcoin miners, which use powerful computers to create new bitcoin units and validate transactions on the blockchain, have been forced to change their strategy as the plunge in cryptocurrency prices could undermine their huge investments in technology, the report noted.
Bitcoin hash rates, a measure of the energy used to create new tokens, are down 4% since the beginning of the week, according to Blockchain.com. The decline suggests that digital miners have less computing power to devote to solving complex puzzles; Miners are rewarded with newly minted Bitcoins for solving these puzzles.
Separately, total revenue paid to miners fell to its lowest level in nearly a year, according to Blockchain.com. Shares in listed miners Marathon Digital and Hut 8 are down about 40 per cent in the past month, while Argo Blockchain is down 35 per cent.
"It's not fun to be in [digital] mining right now," says Alexander Neumuller, director of the Digital Assets project at the Cambridge Centre for Alternative Finance.
Bitcoin has reportedly lost more than 50 per cent of its value this year, trading below $21,000. Losses in bitcoin have accelerated in recent weeks after stablecoin Terra crashed and lending platform Celsius banned its clients from withdrawing funds. Charlie Schumacher, a spokesman for Marathon Digital, one of the world's largest bitcoin miners, said, "There are a lot of miners in the industry who are affected by energy price fluctuations. So they are feeling the pressure from two different directions: high costs plus lower revenue per bitcoin."
Didal Bekbaulf, a Kazakh miner and co-founder of mining company Xive, said he was "adjusting to new prices and realities" and would shut down unprofitable mining operations once Bitcoin fell below $25,000.
'Companies that used to turn to banks or markets for funding are finding it harder now,' Mr. Schumacher added. Stock markets have fallen, demand for funding has weakened and interest rates have risen. That could force other companies to close operations or abandon plans to buy more computers, "and in some cases, some people have already started cancelling orders because of cash constraints and shrinking margins."
"Companies that have been planning thoughtfully for the downturn for some time are likely to weather it, but many acted impulsively at the peak of the market and are likely to face capital constraints and shortfalls in the coming months," Jamie Leverton, CEO of Canadian-listed Hut 8, was quoted as saying.