BTC mining profits elusive as difficulty hits all-time high

Block reward miners on the BTC network had their least profitable month in nearly a year in August, leading to bankruptcies, share dilutions, and other ‘Hail Mary’ efforts to stave off the inevitable.

Bitbo data shows BTC miner revenue hitting $827.5 million in August, less than half the total from this year’s peak of $1.93 billion in March and the lowest total since September 2023. Transaction fees’ contribution to this total also slumped to a year-to-date low of $20.8 million. Meanwhile, mining difficulty hit an all-time high in August, making the average cost of producing a single BTC token significantly higher than the fiat value of the said token.

The financial toll of competing to win unprofitable rewards is proving disastrous for smaller miners. On August 24, Rhodium Enterprises filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas.

Rhodium was already struggling to repay $54 million in loans, including “more than $26 million” owed to rival Riot Platforms , but this spring’s halving event—which reduced the block subsidy to just 3.125 BTC—proved the final straw.

Over the weekend, Bloomberg reported that Rhodium had received court approval for a loan of 500 BTC (currently worth around $29 million) from Mike Novogratz’s Galaxy Digital firm. The court approved this BTC-backed plan because the proposed interest rate was 9.5% rather than a 14.5% rate had Rhodium accepted a $30 million loan in cash.

Other mining operators are turning to a variety of solutions to transform losses into profits. Core Scientific recently raised $400 million in new debt, which it used to pay down $267 million in old debt and take advantage of lower interest rates.

Riot recently announced plans to issue new shares, which benefits the firm but dilutes the value of existing shares held by investors. Riot’s total outstanding share count has increased by nearly one-third since the start of the year, while its share price is currently trading only slightly above its 52-week low.

The ‘green’ mining group CleanSpark lost $236 million in its most recent quarter, leading the company to announce plans to double its amount of common stock, a kick-the-can-down-the-road tactic that shareholders will be asked to approve at a special meeting in October. Tellingly, CleanSpark made its announcement on the Friday before the long weekend, as its share price slumped to a low not seen since February.

MARA (formerly Marathon Digital) appears to have given up on mining as a profit source, adopting the ‘if you can’t mine BTC, buy it’ strategy.’ Of the $300 million raised by MARA’s latest debt offering, $249 million was used to buy 4,144 BTC at an average cost of $59,500 (~$1,000 higher than BTC’s price at the time this was written).

I’ll gladly pay you Tuesday for a block reward today

Smaller miners lack the big boys’ ability to raise kajillions via debt/equity, but ‘decentralized’ BTC mining pool Loka Mining recently floated the idea of allowing miners to sell tokens they’ve yet to mine at a discount to institutional investors. The idea is that smaller miners could obtain the cash they need right now to keep their mining rigs humming.

Loka promotes these ‘tokenized forward hashrate contracts’ as a means of monetizing hash rates to access capital needed to scale up operations without giving up equity or operational control. But again, given the unprofitability of mining BTC, it’s unclear how miners entering into these contracts will ever make ends meet.

Frankly, none of the ‘solutions’ described above will fix the irredeemable problem here, namely, BTC’s deviation from the revenue model described in the Bitcoin white paper. The artificial bandwidth constraints imposed on Bitcoin by the BTC Core developers in 2017—resulting in the BTC chain currently masquerading as Bitcoin—prevent the chain from handling anything more than a trivial volume of transactions per block.

Bitcoin creator Satoshi Nakamoto was clear that the periodic halving of the block subsidy would eventually make mining unprofitable (Satoshi never expected Bitcoin to ‘moon’ to the seven-figure-fiat pipe dreams of today’s BTC maximalists). The idea was always for the individual blocks to scale well beyond their 1Mb origins in order to handle a sufficient volume of transactions to allow transaction fees to supplant the block subsidy.

By contrast, the BSV blockchain honors Satoshi’s vision by putting no artificial cap on block size, allowing it to handle transaction volume that puts Visa and Mastercard to shame (and at a significantly lower cost-per-transaction). This capacity also gives BSV superior data-management abilities, offering utility that BTC can’t hope to match.