Bitcoin Miners Are Playing a High-Stakes Game of Chicken

“It’s kind of a last-man-standing situation,” says Fred Thiel, CEO of US-based Marathon Digital Holdings. His crypto-mining company, among the largest in the world, has found itself—like the rest of the industry—in the path of a perfect storm.

Over the past year, the sector has been battered by a slump in the price of bitcoin, combined with a spike in the cost of energy and an increase in mining difficulty—a reflection of the amount of computing power directed at the bitcoin network, which dictates the proportion of coins miners are able to win. 

At the height of the 2021 boom, profit margins in the mining business rose as high as 90 percent, says Thiel. But now, they have “totally collapsed.” If the price of bitcoin does not rally, he says, there will be “a lot more pain,” and firms that are only marginally profitable today will find themselves “very underwater.” 

As they scramble to cut costs, miners are playing a high-stakes game of chicken. In spring 2024, the halving, a mechanism baked into the bitcoin system that periodically cuts the number of coins awarded in half, will slash mining profits. The goal for miners is to ensure they are in a strong enough financial position to survive the fall in profits longer than anyone else; as miners give in and drop from the network, the share of coins won by the rest will increase. 

“Any miners that are struggling now will not be able to survive the halving,” says Jeff Burkey, VP of business development at Foundry, which operates its own mining facilities, a large-scale mining pool, and a marketplace for mining hardware. The dynamic will create a rush among miners to get their houses in order, he explains.

Miners will look to eke out additional profit margin wherever they can, whether by deploying superior hardware and cooling techniques, developing software to closely monitor the performance of machines, relocating to territories with cheaper power, or renegotiating the terms of their loans.

Others, like Geosyn Mining, are aiming at vertical integration—all the way down to the energy powering the facilities. The company, says CEO Caleb Ward, wants to construct its own solar farm to power its machines, thereby eliminating a major cost. “We need to be more thoughtful as an industry about how we protect against risk,” he says. “It’s not all about shooting for the moon.”