Bitcoin miners buckle as production costs outpace prices

Bitcoin miners are facing an intensifying profitability crisis as the average cost of producing one coin approaches $78,000, leaving about one-fifth of the global mining fleet operating at a loss.

Bitcoin was trading near $64,500 on Thursday, roughly 17% below the estimated industry-wide production cost. The gap has persisted for several months, forcing operators to shut down older machines, sell cryptocurrency reserves and redirect capital towards artificial intelligence data centres.

Mining companies generated new Bitcoin by operating specialised computers that compete to solve complex mathematical problems. Their income depends on the cryptocurrency’s market price, electricity costs, equipment efficiency, network competition and transaction fees.

The current squeeze reflects pressure across nearly all those factors. The Bitcoin price has remained well below its October 2025 record of about $126,000, while transaction-fee income has fallen to a small fraction of miners’ total revenue.

The network’s fixed block reward is 3.125 Bitcoin following the April 2024 halving, which cut the number of coins earned for successfully processing a block by 50%. The reduction placed a lasting constraint on revenue, requiring miners to improve efficiency or rely on a substantial increase in Bitcoin’s price.

That price recovery has not materialised at the level needed by many operators. Publicly traded miners sold more than 32,000 Bitcoin during the first quarter of 2026 to meet operating expenses, exceeding their combined sales for the whole of 2025.

The scale of those disposals illustrates how quickly corporate treasury strategies have changed. Miners had previously accumulated Bitcoin in anticipation of higher prices. Several companies are now selling newly produced coins, drawing down reserves or using their holdings as collateral to preserve cash.

Hashprice, which measures expected mining revenue for each unit of computing power, fell to about $28 to $35 per petahash a second per day during parts of the first quarter. Those levels represent one of the weakest revenue environments since the halving.

Operators using mid-generation mining equipment generally require electricity priced below five US cents per kilowatt-hour to remain cash-profitable under such conditions. Older machines may lose money even where power is comparatively cheap because they consume substantially more electricity for the same amount of computing work.

Electricity usually represents the largest variable expense for a mining operation. Profitability can therefore vary sharply between companies, depending on whether they have long-term energy contracts, access to stranded power, renewable generation or agreements allowing them to curtail consumption when grid prices rise.

Operators with efficient fleets and low-cost electricity remain capable of generating operating margins. The industry average consequently does not mean every Bitcoin costs exactly $78,000 to produce. It reflects a broad calculation that incorporates energy, facilities, equipment depreciation, financing and other corporate expenses.

The network has begun responding to the withdrawal of uneconomic computing capacity. Bitcoin’s mining difficulty stood at about 126.23 trillion at the start of August, down more than 19% from its November 2025 peak of 155.97 trillion.

Difficulty adjusts automatically roughly every two weeks to maintain an average block-production time of about 10 minutes. When miners switch off equipment and the network’s total computing power declines, the system can reduce difficulty, allowing the remaining operators to earn a larger share of rewards.

A 10.09% downward adjustment in June was the second-largest decline of 2026. Difficulty has also fallen below its year-earlier level, an unusual development for a network that has historically recorded strong long-term growth in computing power.

The adjustment mechanism offers some relief but does not remove the industry’s structural challenges. Newer machines continue to enter the market, raising competition whenever conditions improve. Equipment also becomes obsolete quickly, requiring operators to fund expensive replacement cycles.

Transaction fees have provided little support. They have often accounted for less than 1% of block revenue, leaving miners heavily dependent on the fixed block subsidy and Bitcoin’s market price. Strong periods of network activity can lift fees, but that income remains volatile.

Financial pressure is accelerating the shift towards artificial intelligence and high-performance computing. Bitcoin miners collectively announced AI and cloud-computing agreements worth more than $70 billion by the first quarter, using power connections and data-centre sites originally secured for cryptocurrency operations.

Hut 8 expanded its contracted AI data-centre business in July through a 15-year lease worth $9.8 billion at its Beacon Point campus in Texas. The agreement added 352 megawatts of information-technology capacity and fully committed the one-gigawatt site.

Core Scientific, TeraWulf, Cipher Mining and IREN have also developed AI infrastructure businesses. Their access to large quantities of power has become increasingly valuable as technology companies struggle to secure electricity and suitable sites for advanced computing clusters.

Arabian Post – Crypto News Network