Observation: Bitcoin hashrate and mining difficulty hit record highs in 2019, but miners experienced the most difficult year in five years

Bitcoin miners have been on a phenomenal spree in 2019, pushing the network’s hashrate and difficulty to all-time highs, but mining pools have proven to be severely underperforming for a significant period of time.

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Price drop hasn’t deterred Bitcoin miners

Due to unfavorable market prices, most large mining companies are mining at a loss this year. However, this has not led to miner capitulation as previously expected. Instead, miners have redoubled their efforts to continue to enjoy the last 12.5 BTC block rewards before the halving next year.

Looking back at 2019, there were two periods when miners continued to compete for block rewards despite prices falling below the mining breakeven point.

Bitcoin miners injured.

The past 12 months have been the least profitable period for Bitcoin miners in the past 5 years.

Rivers of blood flowed.

… stay tuned

— Charles Edwards (@caprioleio) December 12, 2019

The last few months of the year are also one of the times when mining occurs below the break-even point. However, past miners have also achieved high potential returns, and some miners may decide to keep such coins. Newly produced Bitcoins also have their own value due to the lack of history. However, the halved rewards may also cause miners to limit their activities, as they cannot even accumulate BTC.

In 2019, miners also had access to the futures market, which may have offset some of the losses from selling in the spot or over-the-counter markets. Now, with the launch of futures options, some Bitcoin miners may try to hedge this risk.

Break-even prices are hard to estimate

The hash rate of the Bitcoin network has been fluctuating, recently dropping to 88 quintillion hashes per second from 101 quintillion hashes per second a day ago. The largest contributor continues to be the largest mining pool in China.

At this point, some older mining farms that invested in the S9 ASIC series of miners may still be viable and actually have a more favorable ratio between fee costs and the Bitcoin market price.

There is no consensus on the mining breakeven price, but current estimates assume a breakeven price between $7,000 and $8,000. However, with cheaper electricity prices, miners have the ability to produce BTC at a lower cost price. At $0.05 per kWh of electricity cost, the breakeven is much lower. A rough estimate puts the breakeven point for Bitcoin mining at a Chinese hydroelectric power plant at $3,500.

Historical prices show that Bitcoin’s price has been close to its mining breakeven point for a long time:

FYI. $6,000 is the current breakeven cost of Bitcoin mining at full capacity (if the miner's electricity cost is $0.06/kWh). In 2014/2015, BTC's breakeven cost at full capacity was $190-200, with BTC bottoming out at $180 or 1x mining cost. — Thomas Lee (@fundstrat) September 14, 2018