Challenges in mining industry profitability following halving event

Key Points:
Bitcoin’s hash rate dropped to 575 EH/s, a two-month low, on May 10 following the halving as miners shut down unprofitable rigs.
On May 9, Bitcoin mining difficulty decreased by 6% to 83.15 T, the most significant drop since 2022.
The hash price of Bitcoin hit an all-time low of $44.5/PH/s on May 2, down 75% from its post-halving peak.
According to TheMingMag, nine mining companies, including Marathon Digital Holdings, Riot Platforms, and TeraWulf Inc., had a total hash cost above $55/PH/s in Q1 2024, higher than the current hash price of $54/PH/s, indicating they operate at a loss.
Predictions
The current hash price is approaching the fleet hash cost for many miners, indicating that the hash rate may grow slowly or decrease in the upcoming months due to compressed margins and declining investments in mining companies. Miners in Texas may have to scale down operations during the anticipated summer heat waves. Despite this, mining farms have ordered millions of dollars worth of next-generation rigs like the S21 and M50 series in 2023, with deliveries expected throughout 2024, potentially boosting the hash rate.
Sentiment
While some companies like Riot and Marathon are prospering through efficient operations and strategic expansions, others are struggling to maintain profitability. This contrast highlights the need for companies to upgrade equipment, cut energy costs, and find favorable regulatory environments to enhance their operations.
Analysis
Despite a decline in the hash rate, miners continue to face squeezed margins post-halving, with most companies experiencing over a 50% decrease in margins between pre-halving levels and April 25. Narrow margins have worsened as Bitcoin transaction fees dropped after the Runes-induced spikes, resulting in a decrease in the hash price to an all-time low of $44.43/PH/day on May 1. This led to an 11% drop in the 7-day moving average hash rate to 580 EH/s, prompting a negative 6% difficulty adjustment on May 9, the most significant since Dec. 5, 2022.
The current hash prices have made it challenging for mining companies to cover operating costs, with many operating below break-even. Competition with AI data centers for power resources further exacerbates these challenges, particularly in regions like Texas. Financial pressures are compelling companies to upgrade equipment, but funding constraints are hindering expansion efforts as investment in the mining sector has dwindled.
Public Bitcoin mining companies in North America raised nearly $2 billion in equity financing in Q1 2024, but less than $500 million has been invested so far in Q2. Stock performance has also been weak, impacting future funding prospects. The launch of Bitcoin ETFs has prompted investors to shift away from mining stocks, causing stock prices of major U.S.-listed miners like Marathon Digital (MARA) and Riot Platforms (RIOT) to drop significantly. Rising debt levels are further limiting expansion opportunities for companies like Hut 8 Corp. and TeraWulf Inc., with debt-to-equity ratios increasing substantially compared to previous quarters.