Galaxy 2023 Bitcoin Mining Mid-Year Report

Galaxy 2023 Bitcoin Mining Report

Original Title: 2023 Bitcoin Mining Mid-Year Report

Original Author: galaxy

Original Source: galaxy

Translation: Yvonne, MarsBit

Note: This article is excerpted and translated from Galaxy’s Bitcoin mining mid-year report.


In 2022, miners faced a dangerous storm, with various unfavorable factors intertwined, putting them in a precarious situation. It wasn’t until the first half of 2023 that this storm began to recede. The high energy prices that affected miners in 2022 have fallen back, and natural gas has undergone a significant correction, easing the power pressure on miners. The price of Bitcoin has risen 84% from its low point of $16,600 at the end of 2022. The emergence of ordinals has tripled transaction fees, creating new demand for block space. All these developments are constructive for Bitcoin miners. However, despite the reversal of trends in several key areas of mining, the astonishing growth in network hashrate in the first half of this year has offset many favorable factors, resulting in the highest mining difficulty in history. Influenced by the improvement of mining economics, oversupply of ASICs in the secondary market, the use of new generation machines, and the widespread international growth of hashrate in Russia, the Middle East, China, South America, and other regions, the hashrate has increased by approximately 121 EH in the first half of this year. In this report, we will delve into these major events and trends that have impacted the Bitcoin mining industry in the first half of 2023, and discuss our views on the current state of the industry and the potential impact of the upcoming halving event.

Key Points

The increase in hashrate and difficulty exceeded expectations, with a 30-day increase of 121 EH in the global hashrate. Considering the availability of ASICs, especially the next generation ASICs, and our estimation that the break-even hash price for the network is below $0.045, we expect the hashrate to continue to rise before the end of the year. Therefore, we have raised our year-end hashrate assumption to 465 EH.

Bitcoin’s fourth halving is coming next year, and miners are actively taking measures, either through mergers and acquisitions, diversifying their business beyond mining, or upgrading mining machines with new generation machines.

Natural gas prices rose by 145% in 2022, pushing up electricity prices. Since then, natural gas prices have fallen by 72% in the first half of this year, providing a huge boost for miners.

For miners, ordinals have always been a complete unknown, but they have helped increase transaction fees in the first half of this year to 8,228 BTC, worth $219.8 million, compared to 2,324 BTC worth $82.7 million in the first half of 2022. In terms of USD, it has grown by 166%, and in terms of Bitcoin, it has grown by 254% year-on-year.

In terms of regulation, in 2023, hostile activities against the mining industry continue to increase at the state and federal levels. Considering the increasing attention the White House has paid to the mining industry over the past year, many state-level regulatory agencies have decided to take action, forcing some miners to explore new opportunities outside the United States. Senate bills 1751 and 1929 also demonstrate that even in jurisdictions considered supportive of mining, such as Texas and the ERCOT grid, mining is not completely immune to attack.

Mining Economics

Bitcoin Price Rebounds from 2022 Low

The mining power price at the end of 2022 was close to the historical low point. In the first half of 2023, despite a significant increase in overall network difficulty and mining power, miners still received some relief. Firstly, Bitcoin surged, starting the year at around $16,600 and then experiencing intense volatility in January, reaching $23,000. This was driven by an inflation report suggesting signs of deflation. This event led to a shift in investor sentiment towards risk assets, including Bitcoin, as the market began to consider a policy shift by the Federal Reserve, resulting in a broad-based increase in these asset prices.

From the end of January to early March, Bitcoin showed strong resilience. Initially, the price ranged from $21,000 to $25,000, then entered a period of volatility during the banking crisis. However, Bitcoin was designed precisely to guard against such situations, allowing individuals to have autonomy over their funds and smoothly rise in value. After experiencing the initial price plunge, Bitcoin quickly rebounded to $27,000.

After the turmoil during this period, Bitcoin hovered between $26,000 and $30,000. After BlackRock submitted news to the U.S. Securities and Exchange Commission regarding the launch of a Bitcoin ETF, Bitcoin broke through the key resistance level of $30,000.

Soaring Transaction Fees

Historically, transaction fees have not played a significant role in miners’ overall income for an extended period of time. In 2022, there was almost no congestion in the memory pool, and fees averaged between 1% and 3% of the total rewards. In 2023, due to increased engraving activities, the trend of low fees disappeared. People eagerly sought to engrave Satoshi in various forms of art, audio, and text, leading to a significant increase in the memory pool and block size. In order to prevent their transactions from being cleared from the memory pool and ensure inclusion in blocks, these users attached higher fees to their transactions.

As a result, with the growing popularity of a special engraving called BRC-20, fees soared to unprecedented levels. Important BRC-20 issuance activities pushed fees up to 50% of the total block reward or, in other words, nearly equal to the block subsidy of 6.25 Bitcoin.

Even after the frenzy of BRC-20 caused fees to skyrocket, fees remained high. In the first half of 2023, miners accumulated a total of 8,684 Bitcoin in fees, compared to 2,325 Bitcoin in the first half of 2022 and a total of 5,375 Bitcoin for the entire year of 2022. The increase in fees indicates that miners have gained significant economic benefits from the surge in transaction volume and the corresponding increase in fees, as fees directly contribute to miners’ profits. Subsequently, as interest in BTC-20 declined, transaction fees declined from their peak.

Network Computing Power Continues to Grow

The growth rate of network computing power is faster compared to the first half of 2022. Starting from early 2023, the 30-day tracked network computing power has increased from 249 EH to 370 EH, a growth of 49%, while the growth rate in the first half of 2022 was 22%.

Although the significant growth in computing power in 2022 can largely be attributed to the influx of capital into the ASIC market in 2021 and the newly deployed machines, there are a series of driving factors in 2023, including the growth of Bitcoin prices, the low ASIC prices, the sharp drop in natural gas prices, and the global miners joining the market.

Natural gas prices have dropped by 72%. The decline in natural gas prices in the first half of this year has provided miners with a variable electricity price risk exposure, thereby increasing their overall mining profitability in the case of increasing computing power.

Bitcoin prices have risen by 84%. The rise in Bitcoin prices has also offset most of the growth in hash rate in the first half of this year.

Transaction fees have increased by 62% compared to the total fees in 2022. The increase in ordinals significantly increases the demand for block space, resulting in higher fees. The total block reward increase also helps offset and allow for the continued growth of hash rate.

Global computing power is rising. Although it is difficult to determine the exact location of the hash rate, we suspect that the hash rate in the Middle East, Russia, Latin America, and other parts of the world (such as Bhutan) has increased significantly in the first half of this year.

ASIC manufacturers continue to produce new generation ASICs on a large scale. ASIC manufacturers choose to maintain their production capacity in foundries and may have resumed self-mining on some of these machines as the overall demand for new ASICs has declined due to a large supply on the US secondary market.

Miners are turning to underclocking machines to improve their profit and loss balance. To better weather the storm, some miners have been using custom firmware such as LuxOS and brains OS+ to lower the clocks of S19 series machines, increase efficiency, and make them profitable at lower profit and loss balance levels.

Computing Power Price

Despite the rise in computing power, the soaring Bitcoin prices and generally high transaction fees have pushed up the computing power price, which is the daily revenue per TH in dollars. The 7-day moving average computing power price has increased from $0.060/TH to $0.076/TH in the first half of 2023.

Computing Power Forecast

The 30-day moving average network computing power of Bitcoin has increased by 49% from 249 EH in the first half of 2023 to 370 EH, with an additional 121 EH of computing power growth. Considering that the price of Bitcoin was $16,600 in early 2023 and the computing power price was $0.060, the increase in computing power in such a short period of time is quite astonishing. Assuming that the average efficiency of machines installed in the first half of the year is equivalent to 27.0j/TH, a total of 3.3 GW of capacity has been brought online. Several significant events that occurred in the first half of the year have led to significant growth in computing power.

Hashrate Prediction Adjustment

Method: We make our hashrate prediction based on trying to understand how much hashrate the network can handle, taking into account the average power cost of miners, the efficiency of ASICs that make up the hashrate in the network, and the assumption of a fixed Bitcoin price. For power cost, we assume an average miner power cost of $50 per megawatt-hour, based on historical energy prices from ERCOT and implied power costs from public miners. For the average efficiency of ASICs in the network, we refer to the research by Karim Helmy and Coin Metrics, using nonce analysis to estimate an average efficiency of 33.6 joules per terahash (j/TH). Lastly, we assume a fixed Bitcoin price of $30,000.

With these assumptions, we can calculate the total implied network hashrate at different levels of hash price. Then, we can derive the breakeven USD per megawatt-hour and the implied total mining profit rate assuming a power cost of $50 per megawatt-hour, using an average machine efficiency of 33.6 j/TH at various hash price levels. From this analysis, it is evident that the network can support significantly more hashpower, and the current breakeven hash price is likely around $0.045 or lower. This analysis provides us with the theoretical maximum value of the hashrate. From this starting point, we make predictions by considering other factors that are more difficult to quantify but impact the growth of network hashrate, such as available capacity.

Bull Market Scenario: In the bull market scenario, we assume that the year-end network hashrate is 500 EH (101.6% YoY growth). To achieve this goal, approximately 21.8 EH of hashrate needs to come online each month, which translates to roughly 181,600 ASICs and a power consumption of 545 MW per month (assuming an average ASIC efficiency of 25 j/TH, primarily composed of S19 XP and M50 series machines).

Baseline Scenario: In the baseline scenario, we assume that the year-end network hashrate is 465 EH (87.5% YoY growth). To achieve this goal, approximately 16.0 EH of hashrate needs to come online each month, which represents approximately 133,333 ASICs and a power consumption of 400 MW per month (assuming an average ASIC efficiency of 25 j/TH, primarily composed of S19 XP and M50 series machines).

Bear Market Scenario: In the bear market scenario, we assume that the year-end network hashrate is 430 EH (73.4% YoY growth). To achieve this goal, approximately 10.2 EH of hashrate needs to come online each month, which represents approximately 85,000 ASICs and a power consumption of 255 MW per month (assuming an average ASIC efficiency of 25 j/TH, primarily composed of S19 XP and M50 series machines).

What can we expect from Bitcoin’s fourth halving?

Bitcoin’s fourth halving is expected to occur around April 2024. Every 210,000 blocks (approximately every 4 years), the Bitcoin network automatically reduces the new Bitcoin issuance per block by half. This process ultimately leads to a fixed supply of 21 million bitcoins. However, considering that block rewards (newly issued bitcoins) make up a significant portion of miner revenue, halving is an important event for the mining industry and may have widespread implications.

How mining companies are responding to the halving

With less than 10 months until the halving, mining companies have formulated several strategies to prepare for this event.

Upgrade of mining rigs: For mining companies with good liquidity and the ability to raise funds to a certain extent, many of them have invested in the latest generation of mining machines. Miners with higher electricity costs have also chosen to upgrade their fleets to more efficient machines, in order to position themselves in a more advantageous competitive position after the halving.

Mergers and acquisitions: Mergers and acquisitions have always been an attractive option for listed mining companies facing greater challenges due to high electricity costs, lack of growth narratives, a desire for vertical integration, or the inability to raise funds. Through this approach, mining companies can find companies that can provide resources to compensate for their existing deficiencies.

Diversification of revenue: Some mining companies have already announced their intention or taken active measures to participate in the field of high-performance computing (HPC) data centers, thereby diversifying their sources of income. The field of high-performance computing provides miners with income sources unrelated to Bitcoin mining, while also taking advantage of the hype surrounding artificial intelligence computing.

Potential hash power may go offline

A recent study conducted by Karim Helmy (formerly of Galaxy Research) and Coin Metrics shows that approximately 30% of the network’s hash rate is composed of M20S, M32, S17, e12+, A1066, A1246, and S9 machines. As of June 30th, the network’s hash rate was approximately 369 EH, and this group of machines contributed an implied 110 EH to the network’s hash rate. Considering the low efficiency of these machines, it is reasonable to assume that the composition of these machines in the network will remain relatively stable before the halving. If we assume that the 110 EH from these machines represents 90% of the machines that will be shut down due to lack of profitability, this would represent a loss of 99 EH.

If the network’s hash rate reaches 500 EH by the time of the halving, the loss of 99 EH would reflect a 19.8% loss in the network’s hash rate. Looking back at the halving in 2020, a 20-30% loss in network hash power seems reasonable, as 25.5% of the network’s hash power (representing 30.8 EH of hash power) went offline after the halving. During the 2020 halving, most of the lost hash power came from the no longer profitable S9 machines. In the same month as the halving, Bitmain launched the S19 and S19 Pro, and MicroBT launched the M30S. As a result, the network hash power achieved a fairly quick V-shaped recovery and reached a new all-time high within just 55 days, while the hash price remained near its historical low (ranging from $0.07 to $0.10).

Given this, it seems plausible to expect a similar V-shaped recovery in network hash power after the halving in 2024. The majority of the network’s hash power loss from less efficient machines will be quickly offset by the new M50 series and S19 XP series machines. Several listed mining companies have already announced a large number of ASIC futures orders for the M50 series and S19 XP series machines, which are expected to be delivered in the first and second quarters of 2024. MicroBT, Canaan, and Bitmain are also likely to announce an improved ASIC in their current machine series during the halving. Of course, the key factors that will have a significant impact on these results are energy prices, especially natural gas prices, and the price of Bitcoin. Assuming natural gas remains at its current level and the price of Bitcoin can stay above $30,000, or even slightly higher, a V-shaped recovery in network hash power seems to be the most likely outcome.

How much computing power can the network withstand after the halving?

In order to try to understand how much computing power the network can withstand, we have created a series of sensitivity analyses to try to understand the bitcoin price required to maintain a certain level of computing power under several key assumptions:

The average electricity cost of mining machines is $50 per megawatt-hour

The average network efficiency is 30.5 j/TH, which mainly represents S19j Pro machines and accounts for half of the average machine efficiency

The price required for miners to achieve a 30% total mining profit margin, which is equivalent to a breakeven of $71 per megawatt-hour

Please note that as of June 30th, the network difficulty is about 50.6T. Given the above assumptions, if the price of Bitcoin is between $30,000 and $35,000, even at the current network difficulty level (which currently means a network hash rate of 375 EH), most miners in the network can still operate profitably with a healthy gross margin. It is also interesting to note that the increased transaction fees may lower the breakeven price for Bitcoin, and maintaining profitability is necessary at different levels of network computing power.

Using the same analysis but making more aggressive assumptions about the average electricity cost and efficiency of machines, the Bitcoin price required to maintain different levels of network computing power has decreased by about 50%. The main assumptions are:

The average electricity cost of a mining machine is $40 per megawatt-hour

The average network efficiency is 25.0 j/TH, representing the average efficiency of S19 XP and S19j Pro machines

The price required for miners to achieve a 30% total mining profit margin

In another analysis, we observed the breakeven USD/megawatt-hour for various ASIC models, assuming a Bitcoin price of $40,000 and transactions with a 15% block reward. The results show that even at the current network computing power level, the marginal revenue of the most efficient ASIC S19 XP is only slightly above $100. Therefore, the halving will further emphasize the miners’ electricity strategy and how they optimize between floating indexes and forward hedges. Another possible outcome is that miners adopting 100% indexed pricing will experience more downtime than ever before. As this phenomenon develops, it may increase the volatility of network computing power.


The series of storms faced by miners at the end of 2022 is finally starting to dissipate. Although miners have enjoyed higher Bitcoin prices, higher transaction fees, and lower energy costs, the rapid growth of network computing power has offset many of these benefits. As a result, the hash price has remained within a relatively narrow range of $0.065 to $0.08. Due to a significant drop in natural gas prices and a substantial decrease in energy prices from the 2022 peak, the breakeven hash price for this network may be lower than $0.05. In view of this, as miners and independent miners look to increase the computing power of next-generation machines such as S19 XP and M50 series, network computing power will continue to rise in the second half of the year.

Miners are taking measures to prepare for the halving in 2024. A few miners have announced plans to transition from mining to high-performance computing and other fields to provide more stable non-related cash flows. There is also a wave of mergers and acquisitions, mainly from miners who are at a disadvantage in the upcoming halving. Mergers and acquisitions make sense for miners who lack vertical integration, growth narratives, or financing capabilities.