HashrateIndex: A Major Turnaround Looking Back at Bitcoin Mining in 2023

Author: Hashrate Index

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2023 is the year of recovery for the Bitcoin mining industry. Bitcoin entered 2023 at nearly $17,000 after the market crash triggered by the collapse of the FTX empire. Hashrate prices have remained below historical lows (at $60 PH/day). The largest publicly listed mining company, Core Scientific, is undergoing bankruptcy liquidation, while many other mining companies such as Iris, Greenidge, and Argo are restructuring their debts, with many more soon to follow. Due to the compression of hashrate prices and rising electricity costs, many miners in North America were facing the breakeven point at that time.

However, 2023 has truly amazed everyone. The price of Bitcoin quickly rebounded from the lows following the FTX collapse, achieving a 149% increase over the year. Hashrate prices rose by 71% in 2023, a significant reversal after a 76% drop in 2022; this recovery was largely driven by a bull market in transaction fees, primarily from ordinal and inscription activities, a new Bitcoin-based NFT/digital collectible standard that generated record transaction fee revenue for miners. By most metrics, 2023 represents a complete reversal of the market crash in 2022.

Bitcoin Hashrate Doubles

In 2023, Bitcoin hashrate experienced explosive growth. Its 7-day average hashrate increased from 255 EH/s to 516 EH/s, a rise of 102%, far exceeding the increases of 18% and 41% seen in 2021 and 2022, respectively. The average 7-day hashrate for Bitcoin in 2023 was 382 EH/s, up 73% from 220 EH/s in 2022. Additionally, the 7-day and 30-day average hashrate for Bitcoin in 2023 reached historical highs of 545 EH/s and 510 EH/s, respectively.

Figure 1: Comparison of Bitcoin hashrate trends in 2022 and 2023

Hashrate prices were close to historical lows at the beginning of 2023, with most indicators suggesting a downward trend or stability throughout the year. However, similar to Bitcoin, the dollar-denominated hashrate prices exceeded market expectations in 2023, achieving an astonishing increase of 71% over the year, rising from $59.42 PH/day to $101.78 PH/day; in contrast, hashrate prices fell by 76% in 2022, from $246.85 PH/day to $59.42 PH/day. Nevertheless, the average hashrate price in 2023 was $74.73 PH/day, down from $123.87 PH/day in 2022, a decrease of 40%.

Figure 2: Comparison of hashrate price trends in 2022 and 2023 in dollar terms

The volatility of hashrate prices in 2023 was primarily due to fluctuations in transaction fees driven by inscriptions, which were greater than in 2022.

In 2022, hashrate price fluctuations were affected by the erosion of coin prices. When Bitcoin prices found a bottom transitioning from 2022 to 2023, volatility dropped to its lowest level since July 2020, and on the first day of October, it fell again to a multi-year low, reaching the lowest point since November 2018. By the end of the year, the bull market in transaction fees pushed hashrate price volatility to its highest level since May 2020, when hashrate prices were responding to Bitcoin's third halving.

Figure 3: Overview of 30-day hashrate price volatility in dollar terms

Ordinals and Inscriptions Boost Transaction Fees

The biggest dark horse of 2023 was the new technological standard for Bitcoin-based non-fungible tokens (NFTs): ordinals and inscriptions. This new method of creating digital artifacts/art on Bitcoin has made transaction fees a significant source of mining revenue once again.

In fact, 2023 was the second-lowest year in history for Bitcoin transaction fee revenue; miners earned $797,867,915 in transaction fees in 2023, second only to the $1,019,725,113 set in 2021. Transaction fees accounted for 7.6% of block rewards in 2023, compared to only 1.5% in 2022.

Figure 4: Changes in the proportion of transaction fees to block rewards

Mining Machine Market Hits Bottom

Mining machine prices showed a downward trend at the beginning of 2023, ultimately hitting bottom in the fourth quarter of 2023.

As Bitcoin prices rebounded from $16,000, mining machine prices bounced back from their lows in the first quarter of 2023, but after a brief price recovery at the beginning of the year, they continued to decline in the second and third quarters. So far, next-generation mining machine prices hit a low in October, with new-generation machines reaching their low at the end of November/beginning of December; since then, they have rebounded in response to the hashrate price recovery in the fourth quarter.

Figure 5: Comparison of price trends for mining machines of different efficiency levels

A close look at the new and old mining machine models reveals that as 2023 progressed, the premium rate for new-generation mining machines increased. The following chart shows the percentage difference in price per unit hashrate (TH) between new and old models in dollar terms, with a minimum order quantity (MOQ) of 1-200.

Figure 6: Price premiums and hashrate prices for new and old mining machines

Slight Decrease in Electricity Prices

Electricity and fuel prices in the U.S. experienced record inflation in 2022. Entering 2023, the impact of inflation has eased, particularly for industrial electricity consumers.

From January to October 2023 (latest data), the average price of industrial electricity in the U.S. was $81.3 per megawatt-hour, down 2.3% from $83.2 per megawatt-hour in the same period of 2022. During the same period, the average cost of commercial electricity in 2023 rose by 3.1% from $128.1 per megawatt-hour in 2022 to $124.3 per megawatt-hour, while the average cost of residential electricity increased from $0.15 per kilowatt-hour in 2022 to $0.16 per kilowatt-hour in 2023.

Figure 7: Average price of industrial electricity in the U.S. in October 2023

Custodial Fees Decrease

Overall, custodial fees for Bitcoin mining decreased in 2023.

While there is no universal custodial method for Bitcoin mining, fees typically fluctuate based on the energy market's ups and downs. In fact, as energy and electricity prices rose, we saw custodial fees spike in 2022, with average total custodial fees reaching $0.082 per kilowatt-hour in the fourth quarter of 2022; at that time, hashrate prices were in the range of $55-62 PH/day, making it unprofitable for many miners (unless they had next-generation equipment).

Figure 8: Average custodial fee rates in various provinces of Canada

Figure 9: Comparison of average custodial fee rates in U.S. states between Q4 2022 and Q4 2023

Bitcoin Mining Stocks Rebound

2023 was a year of recovery for Bitcoin and its mining industry, and Bitcoin mining stocks were no exception.

Investors view Bitcoin mining stocks as high-beta tools for Bitcoin exposure, so as Bitcoin prices and hashrate prices rebounded, the rebound in Bitcoin mining stocks was even stronger, with many stocks seeing triple-digit returns during 2023.

Figure 10: Price trends of major mining stocks

As nearly every publicly listed mining company enjoyed significant stock price growth in 2023, their financial conditions at the end of 2023 were healthier than in 2022.

Figure 11: Financial conditions of major publicly listed mining companies

2023 was a year of expansion for most publicly listed mining companies. Among the 12 mining companies we tracked, 7 increased their hashrate by more than double over the year. Marathon experienced the most rapid growth, expanding its hashrate from 7 EH/s to 24.7 EH/s.

Figure 12: Comparison of hashrate holdings of major publicly listed mining companies

Significant Regulatory Policies and Related Bills for the Bitcoin Mining Industry in 2023

2023 may be one of the most active years for policy proposals and formal government actions regarding the Bitcoin mining industry. In the U.S., a notable feature of 2023 was that state-level agencies took significant actions to regulate the industry, including so-called "mining rights" laws aimed at establishing legal protections for Bitcoin mining entities by treating them as data centers (sometimes successfully).

Figure 13: Regulatory policies and bills for the global Bitcoin mining industry in 2023