Notes 01/03: Bitcoin Mining Consolidation

Between a debilitating crypto winter and rising energy costs, bitcoin miners were caught between a rock and a hard place for most of 2022. But Bitcoin’s hash rate – the amount of computing power devoted to mining the cryptocurrency – is near its peak rates.

Back of the envelope math shows that the amount of computing power devoted to mining bitcoin has surged by roughly 160 percent since the pandemic began more than two years ago.

That increase has occurred during a tumultuous stretch for crypto. Bitcoin, and the wider cryptocurrency markets, continued its schizophrenic price trajectory, setting two new price records before plunging by more than 70 percent the next year.

An increase in hash rates suggests that miners are deploying more equipment to mine bitcoin. The cryptocurrency’s proponents will have you believe that it is a sign of Bitcoin’s resilience. Available information tells a different story.

The Economics of Centralization  

The difficulty of bitcoin’s mining algorithm rose consistently last year. That development, coupled with its declining price, meant that it was progressively harder and less lucrative to mine the cryptocurrency. Not surprisingly, revenue for miners fell during this period. Some have filed for bankruptcy and others have received capital infusions.

In the process, bitcoin mining has become more centralized.


Based on available hashrate estimates, the cryptocurrency’s mining is largely controlled by three players – Bitmain, Foundry USA owned by Digital Currency Group (DCG), and F2Pool. Together their mining pools accounted for more than 60% of all bitcoins mined in November last year. Their share will increase in the future as they fold distressed miners into their operations.

In the latest mining breakdown estimates at, their share of the overall market has remained constant. In fact, the list of top bitcoin miners churning out the cryptocurrency is the same as it was back in November. Publicly listed miners do not feature on’s list.

A Capitulation and More Consolidation?

Analyst Tom Dunleavy from research firm Messari found that publicly listed miners sold off almost all their bitcoin stash to fund their operations last year. He says that might place additional downward pressure on the cryptocurrency’s price. That means bitcoin miners will have to contend with even more shrinking margins. A steady decline in bitcoin mining’s difficulty in the last month could relieve some pressure off that margin.        

But the relief might be temporary.

Most experts agree that bitcoin’s price is due another capitulation. The extent of that bottom is unclear, however. Some are expecting the cryptocurrency’s price to fall below $10,000 while others have pegged it at between $12,000 and $13,000.

The short-term outlook for energy prices is also not encouraging. According to the Energy Information Administration (EIA), electricity prices in January are expected to be 35% higher as compared to last year. While natural gas prices have declined in Europe, they will take time to percolate down to consumers.

All of this means that more bitcoin miners will fall by the wayside and the industry will consolidate further. For publicly listed miners, the reckoning may be especially harsh due to the spotlight on their operations.

Bitcoin As Digital Gold?

For a long time, advocates of the cryptocurrency have positioned it as digital gold. Like its metal counterpart, the cryptocurrency’s limited supply is supposed to imbibe it with value. Like gold, it might have select use cases in mainstream economy. [Although, those use cases remain unproven as of this date].

However, there is one major point of difference. While the gold mining industry is dominated by a handful of firms, bitcoin claimed to be decentralized. It was supposed to put power back into the hands of masses by enabling them to mint money in the privacy of their homes!

If the cryptocurrency ends up surviving the latest winter in its ecosystem, then its mining ecosystem – three private firms controlling more than half of market supply – will make it an even stronger contender to becoming digital gold.

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