Bitcoin hash rate trend

Bitcoin Mining in 2022: Cyclical Pressures and the Resilience of Network Hashrate

Following the rapid expansion of mining capacity and surge in profitability for Bitcoin miners in 2021, 2022 quickly turned into a turbulent year for many operators—particularly those in North America. Over the past 12 months, a combination of unfavorable macroeconomic and crypto-specific factors significantly impacted the profitability of certain mining operations, forcing many operators to restructure their balance sheets or even declare bankruptcy. Yet, despite these headwinds, the Bitcoin network's hashrate—a measure of the total computational power competing for the next Bitcoin block—has continued to climb, reaching near all-time highs.

In this report, we explore the cyclical nature of Bitcoin mining and the competitive forces that have driven network hashrate upward even amid financial strain and public market distress. While the divergence between Bitcoin price and network hashrate since late 2021 has created pain for some miners, the continued growth in hashrate indicates rising network security and reflects growing demand for mining activities.

The ongoing global demand for Bitcoin mining, combined with the industrialization spurred by the rise of publicly traded miners in North America, is likely to support further hashrate growth in the coming year. While a higher total hashrate may suppress profitability for smaller or undercapitalized operators (as larger, better-funded players consolidate market share), the trend is objectively positive for the overall security of the Bitcoin network.

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Figure 1: Bitcoin Price, Hashrate, and Key Events

[Chart illustrating Bitcoin price and hashrate along with major events.]

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Inherent Cyclicality

Given the historical volatility and cyclical nature of Bitcoin prices—partly driven by supply-side effects from the quadrennial halving—we believe the mining industry is subject to inherent cycles. In fact, the dynamics of Bitcoin mining often resemble those of traditional commodity production like gold. As demand for the underlying asset grows, operators compete to build or expand operations, driving up the cost of inputs related to incremental capacity. Eventually, this response lags and overextends until demand slows and the cycle shifts.

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Figure 2: ASIC Hardware Prices by Model

[Chart showing the prices of various ASIC models.]

In Bitcoin mining, application-specific integrated circuit (ASIC) machines are the primary “tools” of the trade. Tracking the price trajectory of ASICs over the past few years offers insight into the latest mining cycle. Beginning in late 2020, as Bitcoin prices surged, ASIC prices also rose rapidly. While ASIC prices serve as a real-time proxy for mining demand, deploying them typically takes 3–12 months—often longer due to pandemic-related supply chain issues—creating a lagged impact on network hashrate and mining difficulty.

Between late 2020 and early 2022, rising Bitcoin prices prompted many North American operators to expand capacity to capture higher profitability. After China banned mining in mid-2021, the migration of Chinese hashrate accelerated hardware deployment in North America, creating a significant backlog. As operators rushed to purchase ASICs, build infrastructure, and deploy hashpower, many took on excessive debt, often collateralized by held Bitcoin or ASICs.

In retrospect, many of these loans failed to adequately price in the risk of a sharp Bitcoin downturn. Once Bitcoin prices began declining sharply around March–April 2022, miners were further squeezed by rising energy costs and tightening credit conditions. Operators with floating-rate electricity contracts or insufficient hedging were especially vulnerable. These factors forced many into distress, while more conservatively managed operators stood to gain market share.

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Public Miner Overview

While private miners dominate the industry (accounting for approximately 177 EH/s, or ~75% of total hashrate as of October 2022), publicly traded Bitcoin miners represent a fast-growing segment of the global market. In recent years, more operators have turned to public capital markets to access equity and debt financing, driving further industrialization. Despite a difficult 2022, many North American operators are projecting large expansions in 2023.

Publicly listed miners, required to publish audited financials, serve as a useful barometer for industry health. However, they operate under relatively challenging conditions compared to the broader global market. While they benefit from regulatory clarity and capital market access, they also face rising energy and capital costs.

Given the rapid influx of hashrate into North America, miners in the region are often compelled to aggressively scale. Without expanding in line with network growth, an operator risks dilution of market share. In this section, we analyze the top 15 publicly traded North American miners, who held ~58 EH/s at the end of 2022—about 21.9% of global hashrate. Over the year, the network’s total hashrate grew ~50%, while this group expanded by ~109%, increasing their relative share from ~15.7% to ~21.9%.

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Figure 3: Hashrate Growth of Top Public Miners in 2022

[Chart showing hashrate growth of leading public miners.]

Not all miners in this group fared equally. Some increased hashrate at the expense of balance sheet health. As ASIC prices collapsed, leveraged loans backed by ASICs became problematic. Core Scientific, which filed for bankruptcy in December, had raised ~$366 million from six lenders, backed by 8.9 EH/s of hardware—more than half of its 15.7 EH/s fleet. The fair market value of these collateral assets declined 50–70%, leaving both borrowers and lenders exposed.

Interestingly, lenders now face limited recourse: (1) operate the miners themselves, (2) liquidate ASICs into an illiquid market, or (3) restructure with borrowers. The third option is often the path of least resistance.

Operators with more conservative financing and hedging approaches—such as Hut8 and Riot—were in better shape. Rising costs, high leverage, and fierce competition contributed to widespread distress in North America.

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Figure 4: Debt (per EH/s) and Bitcoin Reserves of Top Public Miners (as of Dec 31, 2022)

[Chart showing debt per EH/s and BTC reserves of top public miners.]

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One Miner’s Distress is Another’s Opportunity

Despite adverse conditions, network hashrate loss from North American shutdowns has largely been offset by new deployments. While precise data is limited, a few credible sources of incremental hashrate have emerged:

• Well-capitalized North American operators: Riot, Cleanspark, and Bit Digital expanded responsibly during favorable credit conditions. Private U.S. mining pool Foundry (a DCG subsidiary) quadrupled its hashrate to ~86 EH/s, becoming the world’s largest pool.

• Private/state-owned operators in regions with low-cost or stranded energy: Growth in Russia, the Middle East, Africa, and South America is fueled by cheap or surplus energy.

Unlike past cycles, motivations for mining now extend beyond pure Bitcoin price speculation. Emerging use cases include:

• Monetizing stranded energy: Mining allows geographic independence in using otherwise wasted energy (e.g., flare gas capture). Large energy companies like Shell and ExxonMobil are exploring mining to boost profitability and reduce emissions.

• Grid stabilization via demand response: Miners can quickly curtail power usage, offering grid flexibility unmatched by other industries. Common demand response strategies include fixed-price energy with curtailment obligations or selling electricity back to the market during high spot prices (notably in ERCOT/Texas).

• Enabling renewable energy: Bitcoin mining helps stabilize intermittency from wind/solar by using excess energy during off-peak periods. Projects like the Tesla–Block–Blockstream partnership in West Texas demonstrate this.

These motivations do not require miners to accumulate Bitcoin, unlike traditional operators. Instead, mining is increasingly used as a tool to directly monetize excess energy that might otherwise be uneconomical to use.

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Conclusion

Given hashrate trends throughout 2022, we expect new deployments in early 2023 to outpace reductions from distressed miners. Some of the most financially strained operators began restructuring or deleveraging in H2 2022, and even bankrupt players like Core Scientific intend to continue mining operations.

As discussed, recent hashrate growth was largely driven by North American expansion—partly a delayed result of China's mining ban and the region's regulatory clarity and capital access. North America’s competitive environment will likely continue driving rapid capacity growth.

Meanwhile, novel forms of energy monetization provide incremental mining demand. Barring a sharp drop in Bitcoin price or a significant change in mining economics, the network hashrate is likely to keep rising throughout 2023.