![Bitcoin Miners Face Significantly Reduced Earnings in May Despite Bitcoin Price Rise Bitcoin Miners Face Significantly Reduced Earnings in May Despite Bitcoin Price Rise](https://static.news.bitcoin.com/wp-content/uploads/2024/05/orby-768x432.jpg)
New Mexico is the cheapest US state to mine Bitcoin in terms of average electricity cost, while Hawaii is the by far the most expensive.
It now costs Bitcoin (BTC) miners at least $17,000 to produce one BTC in the U.S. versus the $5,000-10,000 range a year ago, according to Bitcoin mining data resource Hashrate Index and Luxor.
Unsurprisingly, soaring electricity rates across the U.S. states have contributed to rising Bitcoin mining costs.
Notably, between January 2022 and January 2023, the commercial electricity tariff surged at an average of 10.71% per U.S. state, higher than the average consumer price index surge of 6.4%.
Coupled with Bitcoin's downward performance in 2022, which saw a maximum drawdown from around $48,000 to below $15,000, it is evident that active miners generated consistent losses due to the increase in operational costs and lower returns.
But this changed in Q1 of this year as the miners' hashprice, or the USD price per tera-hash per second per day (TH/s/d), rose 31% thanks to Bitcoin's price recovery toward $30,000.
"Bleak as the new year looked at the outset, the lowest day for hashprice on a USD basis in Q1 was January 1," noted researchers at Hashrate Index, adding:
"It was only up from there as a 70% rise resuscitated Bitcoin’s price over the quarter, and along with it, hashprice."
New Mexico emerged as the cheapest and, in turn, more profitable state for Bitcoin miners in Q1 at $16,850 to mint one BTC. On the other hand, Hawaii was the most expensive at around $114,590.
Regionally, the south and the midwestern US states are the most attractive for miners in terms of electricity.
More recently, some U.S. states, including Arkansas, Montana, Missouri, Mississippi, and others, have take concrete steps to protect crypto miners from excessive taxes and regulations. On the other hand, Texas has amended its utilities and tax codes, bolstering restrictions for crypto mining companies.
Furthermore, the researchers anticipate the Bitcoin mining margins to grow further based on the U.S. Energy Information Association's (EIA) expectations of energy price deflation.
Related: Bitcoin advocates rally at Texas State Capitol to oppose bill cutting mining incentives
For instance, the agency expects the demand for electricity to drop by 1% in Q2, citing additional generation from renewable sources and cheaper natural gas prices. It further anticipates that natural gas prices will remain below $3 in 2023 from 2022's $6.45 average.
Lower operational costs could help otherwise cash-strapped Bitcoin mining companies survive in 2023. For example, the stock price of Core Scientific, an already bankrupt Bitcoin mining firm, has jumped over 450% YTD.
Similarly, the HI Crypto Mining Stock Index has soared by more than 100% this year , showing a return of investor appetite for mining socks.
Hashrate Index researchers noted:
"If the bitcoin price was to increase by an additional 40% to reach $42k this year, most mining stocks would rise by more than 50% from today’s level, while the four-to-five biggest gainers would soar by more than 150%."
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
Better luck next time? Luxor’s OTC Bitcoin mining derivatives could offer miners “a much needed tool to hedge their mining operations.”
Hedging against downside has always been a challenge for Bitcoin BTC miners, and the current bear market is a perfect example of how energy prices and crypto market volatility can negatively impact miners’ profit margins and their ability to stay solvent.
Oftentimes, institutional and retail traders use BTC-, stablecoin- and U.S. dollar-settled derivatives (options and futures contracts) to create hedging strategies that mitigate downside in Bitcoin price, and now an instrument specific to Bitcoin mining is available to miners.
The Oct. 10 launch of Luxor Hashprice NDF, a non-deliverable forward contract, will allow miners to hedge their exposure to Bitcoin price and the energy costs associated with mining.
According to Luxor Technologies, “hashprice” is the revenue BTC miners earn per unit of hash rate, which is the total computational power deployed by miners processing transactions on a proof-of-work network.
The over-the-counter derivatives contracts are settled using Luxor’s Bitcoin Hashprice Index, and investors can choose to settle in dollar-pegged stablecoins, dollars or BTC. A primary benefit of the instrument is that contract sellers can lock in Bitcoin mining revenue, while contract buyers can tap into the upside potential of Bitcoin mining without the need for physical exposure.
Related: Will the Bitcoin mining industry collapse? Analysts explain why crisis is really opportunity
According to Luxor co-founder and CEO Nick Hansen:
“These products are a major step in the Luxor roadmap and something we have analyzed deeply since the company’s genesis; hashprice derivatives are the apotheosis of our vision of hashrate as an asset class, something we’ve been pioneering since we introduced hashprice with the launch of Hashrate Index in 2020.”
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.