According to ViaWallet Explorer, Bitcoin cut the minting difficulty by 7.32%, dropping from 36.95T to 34.24T, at block height 766,080 on December 6, which is the biggest decline in 2022. Meanwhile, as the BTC price once again falls below $17,000, miners face huge pressure in earning more profits. In the meantime, most mining machines are already running at a loss, and their payback period is infinitely prolonged.

Signals of surrender
Most retail miners with limited funds are prone to risks and market swings. Since August, the BTC price has stayed around $20,000. Meanwhile, data provided by ViaBTC Pool shows that former flagship models such as Antminer S17+ and Whatsminer M21 S+ have fallen below the shutdown price. Facing high operating costs such as electricity and maintenance fees, most retail miners have had to sell their BTC holdings in exchange for liquidity to maintain their mining operations or shut down their machines and wait for the market to rebound.

In fact, the crypto winter has been harsh on even big institutions. Compute North, a Bitcoin mining company, filed for Chapter 11 bankruptcy in September 2022. Moreover, stocks of Stronghold, Greenidge, and Argo Blockchain are being traded at less than $1 per share, and the companies might get delisted by Nasdaq. Core Scientific, once the largest BTC mining company in North America, has plummeted by over 77% in stock price, and it is on the verge of bankruptcy.

Under such circumstances, both retail miners and large mining companies tend to dump their BTC holding to reduce the cost burden. According to the Miner Reserve indicator provided by CryptoQuant, since November 2022, the reserve of Bitcoin miners has kept falling and bottomed out at 1.83 million BTC. The declining reserve will hurt investor confidence, which may lead to further drops in the BTC price.

Data source: CryptoQuant

A sharp decline in mining profits
If a miner invested in BTC mining and purchased mining machines in 2022, according to the current market performance, his/her expected payback period is about 29 months. Although a period of more than two years seems long, it is a great improvement compared with the payback period of miners who joined the game after June 2021.

During the market boom last year, Antminer S19 Pro, a popular mining machine, was quoted at about $9,000 per set. Plus, they were all futures, meaning that it took more than a month for the machines to arrive. Despite that, buyers flocked to the market. Based on the profit of $0.39 per 1 TH/s, an Antminer S19 Pro with a rated hashrate of 110T could earn a stunning $42.9 a day, and the net daily profit deducting costs such as the electricity bill still stood at $38. This meant that buyers could recover the cost of an Antminer S19 Pro in merely eight months.

However, that boom didn’t last long. As 2022 kicked off, the BTC price plummeted from over $40,000 to $17,000. This, coupled with the rise in global energy prices, 1 TH/s in hashrate earns $0.06 per day, according to TheBlock. The payback period, which used to be eight months, has been prolonged to over 90 months. The shrinking profits have forced miners who joined the business last year to give up.

Data source: The Block

What is the solution to the mining predicament of BTC?
In reality, the reduction in mining difficulty may represent an opportunity for miners. This is the case because an increase in difficulty means that it will take all miners a longer period and larger hashrates to identify the correct hash and win block rewards, which will destroy the motivation of mining in light of today’s bearish market conditions. During the past five adjustments, the BTC difficulty went up three times, a rare record compared to practices during previous bear markets.

Source: https://explorer.viawallet.com/btc/statistics/mining/networkdifficulty

That said, even the most persistent miners will have their vulnerable moments. The fall of FTX smashed the crypto faith among miners, some of whom opted out. In response, Bitcoin reduced the mining difficulty by 7.32% to 34.24T at block height 766,080, as we mentioned in the beginning.

On the other hand, this also means that the mining profits of persistent miners might go up in the coming weeks. The key to resolving BTC’s mining dilemma lies in whether the BTC price could be pushed up by favorable factors. Perhaps, the issuance reduction of LTC, another “sibling” of BTC, might help miners get through the predicament and stimulate the crypto market to rebound.