2023 Q3 Bitcoin Mining Report: Hash Price, ASIC Price, Electricity Price

By Colin Harper, Jaran Mellerud, Balmy Investor, Hashrate Index; Compiled: Pine Snow, Golden Finance

The third quarter has passed, and we have written another quarterly Bitcoin mining report, documenting all the significant changes and trends that have occurred over the past three months.

Our latest report covers hash prices, commonly used network data (hashrate/difficulty/transaction fees), inscriptions, ASIC markets, energy markets, Bitcoin mining company stocks, and more.

Dollar-denominated hash price volatility at record low

Thankfully, the dollar-denominated hash price continued to rise in the third quarter, with Bitcoin reaching an annual high of just over $30,000. The average price of Bitcoin in the third quarter of 2023 was $28,100 ($26,350 in the first three quarters of 2023), which is enough to provide some support for the dollar-denominated hash price to prevent it from falling significantly as Bitcoin mining becomes more difficult.

Still, while hash prices were above $70/PH/day in the first half of the third quarter, they fell below $70/PH/day in August and have been trending towards all-time lows ever since (in fact, at the time of writing, just under $60/PH/day is approaching an all-time low of $55/PH/day). The average USD hash price in September was $61.71/PH/day, compared to the average prices of $61.94/PH/day and $61.90/PH/day in December and November 2022, when the price of Bitcoin fluctuated between $16,000 and $17,000.

Hash price in USD (spot and 7-day EMA)

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That said, overall, 2023 (at least so far) is a more favorable year for hash prices than it is otherwise. When we compare monthly and annualized returns since 2017, this year is less volatile than any other year; Bitcoin recovered 63% in the first three quarters of 2023, more than offsetting Bitcoin’s 7-day average hashrate increase of 59% over the same period (in addition to the recovery of Bitcoin price, hash prices were slightly boosted by transaction fees in the process).

In the timeframe examined below, 2018 was by far the worst year for hash prices, followed by last year’s bear market. The best year was during the unprecedented bull market in 2017, and then 2020 – which may come as a surprise to some readers, as the third Bitcoin halving cut the block reward from 12.5 BTC to 6.25 BTC per block that same year.

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Year-to-date changes are shown year-to-date every year except 2023 Source: Hashrate Index

Transaction fees remain relatively high but start to decline

In Q3 2023, transaction fees accounted for 2.7% of all block rewards, significantly lower than Q2’s 8.17% but still higher than Q1’s 2.3%.

Despite the decrease in transaction fee income in the second quarter, miners are still earning revenue in the third quarter compared to last year’s figures. In Q3 2022, transaction fees accounted for only 1.7% of all block rewards, with a lower average of 1.64% in 2022. So far in 2023, transaction fees have accounted for 4.38% of the block reward.

As discussed in our Q2 2023 report, the growth in transaction fees in 2023 stems from the paradigm shift of block space market dynamics from inscriptions/ordinals – a new standard for creating non-fungible tokens (NFTs) on Bitcoin.

As the chart below illustrates, the vast majority of these transaction fees were incurred during a brief burst in May. In fact, miners netted 1390.89 BTC ($38,156,799) in May alone, which is 66% of the historical fee (as of the close of Q3 2023). The revenue comes from a surge in demand from collectors and inscriptions competing for the BRC-20 token, a subset of text series inscriptions created using Bitcoin’s OP_CODE feature.

Inscription of daily and total Bitcoin mining transaction fees

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Inscription Daily Transaction Fee and All Time Fee, Source: dataalways Dune dashboard

The chart below confirms that the number of inscriptions is declining significantly. So far in October, the share of inscriptions in transaction fees and trading volumes is at its lowest level since the first quarter. On average, in the third quarter of 2023, inscriptions accounted for 45% of daily trading volume and 14% of all daily transaction fees; The second-quarter averages were 32% and 16%, respectively, and the first-quarter averages were 3% and 8%, respectively.

Inscription shares and transaction fees for daily Bitcoin transactions

! [Z6nuHSJqH7vfDhECAkhyPyM7xhF7cBcp1dsKmgAk.png] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-eb4f867ce5-dd1a6f-69ad2a.webp “7121089”)

Source: Hashrate Index, dataalways Dune dashboard, Coinmetrics

ASIC prices hit new lows

Bitcoin mining ASICs continued to decline in 2023, with all models hitting record lows in the third quarter as mining margins continued to decline.

As shown in the figure below, the first-generation ASIC miners (miners with an efficiency of 28-31 J/TH) that we classified have gradually separated from other miners over the past year; Their premium prices have gradually increased since April, and the gap has been increasing ever since. At the beginning of 2023, there was a brief increase in the price of mining rigs at all levels as the hash price rose, while in the second quarter, they again saw a brief price increase, supported by the revenue from transaction fees driven by inscriptions.

Bitcoin mining ASIC price per efficiency layer

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Source: Luxor ASIC Trading Desk

When we look at the change in listing prices for different ASIC efficiency tiers in 2023, the first quarter showed a difference. Due to the rebound in hash prices, every mining rig tier (except for next-generation miners) gained value in Q1; Conversely, next-generation miners like the S19 XP were a bit oversold in the first quarter as the recovery of hash prices made less efficient miners more attractive.

The second and third quarters were different, with overselling accelerating, especially for older and less efficient models. The table below highlights the point that miners are beginning to distinguish between Tier 1 (28-31 J/TH) and Layer 2 (34-38 J/TH) next-generation ASIC miners.

! [76UZM9QsCoFDPO8FMBDWRgCi8sAVktogxpoKWqGJ.png] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-4c7604343b-dd1a6f-69ad2a.webp “7121097”)

Source: Luxor ASIC Trading Desk

Antminer S21

Bitmain unveiled its latest ASIC model, the Antminer S21, at the World Digital Mining Summit in September, which will be available in air-cooled and water-cooled versions. The new model is the first-ever Bitcoin mining ASIC to achieve sub-20 J/TH efficiency.

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Antminer S21 compared to other popular miners | Source: Hashrate Index

Bitmain could begin shipping S21 models as early as December, although a more reasonable January shipping date is more reasonable. The company plans to build at least 50,000 miners per month for the next 18 months, to be distributed 50/50 to air-cooled and water-cooled models, but if there is enough demand, they can build up to 100,000 miners per month, a Bitmain representative told Hashrate Index.

At the World Digital Mining Summit, Bitmain announced attractive promotional rates for S21 bulk bookings. For the first phase of booking, a minimum purchase of 1.2 EH/s (6,000 for air-cooled models and 3,380 for water-cooled models) is required, with Bitmain selling for $14/TH. The air-cooled model is priced at $2,800 per unit and the water-cooled model is priced at $4,690 each. The order cost for Phase 2 is $19.6/TH ($3,920 per air-cooled model and $6,566 for water-cooled models) and both require a minimum order volume of 1.2 EH/s.

It should be noted that this is the promotional price of the Antminer S21 when it is listed, and the price of subsequent orders will be higher than the promotional price. In addition, pricing for secondary sellers is close to promotional prices, with many vendors selling models in the $14-15 range.

U.S. electricity prices stable

This time last year, many miners operating in the U.S. struggled with a dire market environment with low hash prices and severe electricity price increases. In the third quarter of 2022, the average industrial electricity price in the United States reached an unprecedented peak of $94 per megawatt-hour, leading to the bankruptcy of some of the largest players in the space, namely Compute North and Core Scientific.

Average industrial electricity price per MWh, July 2023

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Source: EIA

Fast forward to October 2023 and electricity prices have normalized. As the chart above shows, prices in mining hubs such as Texas, the Southeast, New York, and Ohio, Pennsylvania have returned to manageable levels, despite some outliers (for example, Georgia is a hot mining state with higher electricity costs in July 2023).

The average industrial electricity price in the third quarter of 2023 was $86 per MWh, down 8.5% compared to the same period last year. Electricity prices in the U.S. typically peak in the third quarter because of the highest demand in the summer, which requires air conditioning and other cooling equipment.

Bitcoin hashrate continues to show a new seasonal pattern

Anyone following the Bitcoin mining industry has probably noticed a significant pattern that has been repeating over the past three years. Bitcoin’s hash rate tends to grow in an almost uncontrollable manner from October to May, but this growth tends to slow or even fall back over the summer. We saw this pattern particularly in the third quarter of this year. These seasonal patterns are most likely attributed to sharp cuts by U.S. miners over the summer.

Bitcoin Hashrate (7D): Monthly growth in 2023

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Source: Hashrate Index

In the first five months of this year, Bitcoin’s 7-day average hashrate increased by 56%. Then, during the summer three months of June, July, and August, Bitcoin’s hashrate dropped by 1.3%. A sudden 12% gain in September, following a 6% gain so far this month, ended up hitting an all-time high in mid-October.

We are relatively certain that this seasonal pattern is caused by summer production cuts by U.S. miners, particularly in Texas.

West Texas: Electronic price distribution for Q3 2023

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Source: ERCOT

The chart below shows the distribution of electricity prices in western Texas in the third quarter of 2023. As you can see, there are relatively many hours that cost more than the S19j Pro’s average revenue per MWh, which earns $92. Typically, Texas-based miners reduce their mining activity during these time periods. According to the data, a miner in western Texas would theoretically have 80 percent of his time online if he operated a batch of S19j Pro miners, and 20 percent less mining time when electricity prices exceeded the average revenue per megawatt-hour of S19j Pro miners. The miner’s average electricity price during its online time is $33 per megawatt-hour.

Hosting rates in the US and Canada remain relatively stable

Between Q2 2023 and Q3 2023, there was no meaningful change in hosting rates in the US and Canada.

According to our index of data extracted from Luxor business data and Hashbranch, the national average for the United States (all hosting sizes) was $0.0790/kWh in the third quarter of 2023, compared to $0.0787/kWh in the second quarter of 2023; The average price in Canada was $0.0725/kWh in Q3 2023, compared to $0.0722/kWh in Q2 2023 (all prices are in USD).

Average Hosting Cost by State in the US (Q3 VS Q2 2023)

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Bitcoin mining escrow rates in the United States, source: Hashrate Index, Hashbranch

Average Hosting Cost by Canadian Province (Q3 VS Q2 2023)

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Bitcoin mining hosting rates in Canada, source: Hashrate Index, Hashbranch

In the US, the average discount for hosting large fleets (over 200 ASICs) versus small fleets (1-99 ASICs) was 8% in Q3 2023, compared to 7.5% in Q2 2023; Large managed agreements were discounted to medium managed agreements (100-200 ASICs) at a 6.6% discount in Q3 2023, compared to 5.3% in Q2 2023.

Bitcoin mining stocks rise in Q3 before pulling back

Bitcoin mining stocks got off to a strong start to Q3 2023. Riding Bitcoin’s ride to $30,000, they soared in July, but fell sharply for the rest of the quarter, erasing all gains in the first month of the third quarter.

Bitcoin mining stocks and Bitcoin year-to-date returns

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Source: TradingView

Price action is a good reminder that, in general, Bitcoin mining stocks are still trading high beta relative to Bitcoin. The market typically evaluates Bitcoin mining stocks based on their own price movements, rather than based on fundamentals such as fleet efficiency, electricity price/power trading strategies, and operational execution. When the volume increases, the price of Bitcoin mining shares rises higher and faster, and vice versa.

Price action is a good reminder that, typically, Bitcoin mining stocks still behave as high beta trading with the Bitcoin price. (Golden Finance Note: “High beta trading” refers to trading with high beta value.) In finance, beta is often used to measure the price volatility of an asset or portfolio relative to a market index, usually the stock market. A high beta indicates that the price of an asset or portfolio is more volatile, usually aligned with or greater in line with the volatility of the market index. This means that when the market is volatile, the price of highbeta assets will also be more volatile, and the risk will be relatively high. The market typically evaluates Bitcoin mining stocks based on their price fluctuations, rather than based on fundamental factors such as mining efficiency, electricity price/power trading strategies, and operational execution. When the numbers go up, the price of Bitcoin mining stocks rises higher and faster, and vice versa.