Bitcoin (BTC) Mining Companies Experience Significant Challenges as Key Measure of Profitability Reaches Record Low

Analysts from JPMorgan Chase, Reginald L. Smith and Charles Pearce, indicated that daily block reward gross profit for miners declined by 6% month-over-month

Bitcoin (BTC) mining companies are facing an uphill battle with a key profitability metric hitting a record low.

Analysts Reginald L. Smith and Charles Pearce of JPMorgan Chase noted that daily block reward gross profit for miners fell by 6% month-over-month in September. This marks the third consecutive month of declining daily mining revenue and gross profit, despite a slight uptick in average Bitcoin prices.

Bitcoin Halving Causing Major Revenue Loss

According to the analysts, a key factor contributing to the decline in miners’ revenues is Bitcoin’s software update, known as the Halving, which occurred in April this year. This event, which takes place every four years, has a substantial long-term impact on the cryptocurrency’s price during each cycle.

This preprogrammed event reduces the block reward given to miners by 50% every four years, a measure designed to prevent inflation and maintain Bitcoin’s capped supply of 21 million tokens.

Worryingly, the recent Bitcoin Halving is expected to result in an annual revenue loss to mining companies of over $10 billion, based on current BTC prices, which stood at around $60,750 at the time of writing on Tuesday.

Rising Competition and Energy Costs Hitting Smaller Miners Hard

The challenges faced by the 14 major U.S.-listed mining companies are stark, despite their combined market capitalization exceeding $20 billion. The analysts also highlighted the increasing competition from large players entering the U.S. market, which is making the situation even more difficult for smaller miners.

As reported by Bloomberg, the growing number of participants in BTC mining is creating a tougher landscape for individual miners, with the increasing computational power reducing the likelihood of securing a reward.

Bitcoin mining is a highly energy-intensive activity, requiring miners to invest billions in specialized hardware to validate transactions and compete for a fixed amount of Bitcoin rewards.

The financial strain is evident in the stock performance of leading mining companies, with shares of Marathon Digital Holdings Inc. and Riot Platforms Inc., two of the largest publicly traded miners in the U.S., declining by 36% and 54%, respectively, this year.

At the time of writing, the largest cryptocurrency on the market, BTC, is trading at $60,758, down nearly 5% in the 24-hour timeframe and almost 6% in the past week alone.

This follows a surge in the cryptocurrency to a two-month high of $66,500 last Friday on the back of bullish sentiment surrounding the U.S. Federal Reserve’s (Fed) interest rate cut decision on September 18.

However, as previously covered by Bitcoinist, this price action comes amid escalating geopolitical tensions in the Middle East between Israel and Iran, which have prompted investors to sell their coins for “safer” assets like gold.

Featured Image from DALL-E, Chart from TradingView.com

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