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

Bitcoin Mining Report Q3 2023 Updates on Hash Price, ASIC Cost, and US Electricity Prices

Authors: Colin Harper, Jaran Mellerud, Balmy Investor, Hashrate Index; Translation: Song Xue, LianGuai

The third quarter has come to an end, 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 price, commonly used network data (hashrate/difficulty/transaction fees), inscriptions, ASIC market, energy market, Bitcoin mining company stocks, and more.

Historical low volatility in hash price denominated in USD

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Fortunately, the hash price denominated in USD continued to rise in the third quarter, with Bitcoin reaching a yearly high just above $30,000. The average Bitcoin price in the third quarter of 2023 was $28,100 (compared to $26,350 for the first three quarters of 2023), which provided some support for the hash price denominated in USD, preventing it from dropping significantly as Bitcoin mining difficulty increased.

However, even though the hash price was above $70/PH/day in the first half of the third quarter, it dropped below $70/PH/day in August and has since trended towards historical lows (in fact, at the time of this writing, slightly below $60/PH/day, nearing the historical low of $55/PH/day). The average USD hash price in September was $61.71/PH/day, compared to an average of $61.94/PH/day and $61.90/PH/day in December and November 2022, respectively, when Bitcoin was fluctuating between $16,000 and $17,000.

USD hash price (spot and 7-day moving average)

Overall, 2023 has been a more favorable year for hash price compared to other circumstances (at least so far). When comparing monthly and annualized returns since 2017, the volatility this year has been smaller than any other year; Bitcoin has recovered 63% in the first three quarters of 2023, enough to offset the 59% growth of Bitcoin’s 7-day average hashrate during the same period (in addition to the recovery of Bitcoin price, the hash price was also slightly pushed up by transaction fees).

Within the timeframe examined below, 2018 was the worst year for hash price so far, followed by last year’s bear market. The best year was during the unprecedented bull market in 2017, followed by 2020 – which may come as a surprise to some readers, as it was the same year when Bitcoin had its third halving, reducing block rewards from 12.5 BTC to 6.25 BTC per block.

Except for 2023, the annual changes from the beginning of the year to the present are displayed on an annualized basis. | Source: Hashrate Index

Transaction fees remain relatively high but are starting to decline

In the third quarter of 2023, transaction fees accounted for 2.7% of all block rewards, significantly lower than the 8.17% in the second quarter but still higher than the 2.3% in the first quarter.

Despite a decrease in transaction fee revenue in the second quarter, miners are still earning income in the third quarter compared to last year’s data. In the third quarter of 2022, transaction fees accounted for only 1.7% of all block rewards, with an even lower average level of 1.64% for 2022. As of the present, transaction fees account for 4.38% of block rewards in 2023.

As discussed in our second quarter report for 2023, the growth in transaction fees in 2023 stems from the paradigm shift in the block space market dynamics from the inscription/ordinal paradigm to the new standard of creating non-fungible tokens (NFTs) on Bitcoin.

As shown in the graph below, the majority of these transaction fees were generated during a short period of explosion in May. In fact, in May alone, miners netted 1,390.89 BTC ($38,156,799), accounting for 66% of historical fee revenue as of the close of the third quarter of 2023. This income came from the surge in demand from collectors and inscribers competing for BRC-20 tokens, a subset of text series inscriptions created using Bitcoin’s OP_CODE functionality.

Daily and total Bitcoin mining transaction fees for inscriptions

Daily transaction fees and all-time fees for inscriptions, source: dataalways Dune dashboard

The graph below confirms that the number of inscriptions is decreasing significantly. In October so far, the share of inscriptions in transaction fees and transaction volume is at its lowest level since the first quarter. On average, in the third quarter of 2023, inscriptions accounted for 45% of daily transaction volume and 14% of daily transaction fees; the averages for the second quarter were 32% and 16%, and for the first quarter, they were 3% and 8% respectively.

Share of inscriptions and transaction fees in daily Bitcoin transactions

Source: Hashrate Index, dataalways Dune dashboard, Coinmetrics

ASIC prices hitting new lows repeatedly

Bitcoin mining ASICs continue to decline in 2023, with all models hitting historic lows in the third quarter as mining profits continue to decrease.

As shown in the graph below, our first layer of new generation ASIC miners (miners with an efficiency of 28-31 J/TH) has gradually separated from other miners over the past year; their premium prices have been increasing since April, and this gap has been widening since then. At the beginning of 2023, with the rise in hash prices, the prices of all levels of miners experienced a brief increase, and in the second quarter, supported by transaction fee income driven by inscriptions, they once again experienced a brief price increase.

Bitcoin mining ASIC prices for each efficiency level

Source: Luxor ASIC Trading Desk

When observing the price changes of different ASIC efficiency levels in 2023, the first quarter stands out. Due to the rebound in hash prices, each level of miners (except for the next-generation miners) gained value in the first quarter; on the other hand, because the recovery in hash prices made lower efficiency miners more attractive, next-generation miners like S19 XP were slightly oversold in the first quarter.

The situation in the second and third quarters is different, with an increased speed of overselling, especially for older and lower efficiency models. The table below highlights a point, that miners have started to differentiate between the first layer (28-31 J/TH) and the second layer (34-38 J/TH) of new generation ASIC miners.

Source: Luxor ASIC Trading Desk

Antminer S21

Bitmain introduced its latest ASIC model, the Antminer S21, at the World Digital Mining Summit in September. The model will be available in both air-cooled and water-cooled versions. This new model is the first Bitcoin mining ASIC to achieve an efficiency of less than 20 J/TH.

Comparison of Antminer S21 with other popular miners | Source: Hashrate Index

Bitmain is expected to start shipping the S21 model in December, although January is a more reasonable date. The company plans to manufacture at least 50,000 miners per month over the next 18 months, divided evenly between air-cooled and water-cooled models, but they can produce up to 100,000 miners per month if there is sufficient demand, a Bitmain representative told Hashrate Index.

At the World Digital Mining Summit, Bitmain announced attractive promotional prices for bulk reservations of the S21. For the first phase of reservations, a minimum purchase quantity of 1.2 EH/s is required (6,000 units for the air-cooled model and 3,380 units for the water-cooled model), with a price of $14 per TH from Bitmain. The price per unit for the air-cooled model is $2,800, and for the water-cooled model, it is $4,690. The second phase of orders has a cost of $19.6 per TH ($3,920 per unit for the air-cooled model and $6,566 per unit for the water-cooled model), and also requires a minimum order quantity of 1.2 EH/s.

It is important to note that these are promotional prices for the launch of the Antminer S21, and subsequent orders will be priced higher. Additionally, second-level sellers have pricing that is close to the promotional prices, with many suppliers selling models in the range of $14-15 per TH.

Stable Electricity Prices in the United States

At this time last year, many miners operating in the United States were struggling in a terrible market environment with low hash prices and significant increases in electricity prices. In the third quarter of 2022, the average industrial electricity price in the United States reached a peak of $94 per megawatt-hour, leading to the bankruptcy of some of the largest participants in the field, such as Compute North and Core Scientific.

Industrial Average Electricity Prices per Megawatt-Hour in July 2023

Source: EIA

Fast forward to October 2023, electricity prices have normalized. As shown in the graph above, the prices in mining centers such as Texas, the southeastern region, New York, Ohio, and Pennsylvania have returned to manageable levels, although there are some outliers (for example, Georgia was a popular mining state, but had higher electricity costs in July 2023).

The average industrial electricity price in the third quarter of 2023 was $86 per megawatt-hour, a decrease of 8.5% compared to the same period last year. Electricity prices in the United States typically peak in the third quarter due to high summer demand for air conditioning and other cooling devices.

Bitcoin Hashrate Continues to Exhibit New Seasonal Patterns

Anyone following the Bitcoin mining industry may have noticed a significant pattern that has been repeating over the past three years. From October to May, the Bitcoin hashrate tends to grow in an almost uncontrollable manner, but this growth often slows down or even reverses in the summer. We have particularly seen this pattern in the third quarter of this year. These seasonal patterns are most likely due to significant production reductions by US miners in the summer.

Bitcoin Hashrate (7D): Monthly Growth in 2023

Source: Hashrate Index

In the first five months of this year, Bitcoin’s 7-day average hashrate increased by 56%. However, during the summer months of June, July, and August, the hashrate dropped by 1.3%. In September, it suddenly increased by 12% and after a 6% increase this month, it finally reached a historical high in mid-October.

We are fairly certain that this seasonal pattern is caused by US miners reducing production, especially in Texas.

West Texas: Distribution of Electricity Prices in Q3 2023

Source: ERCOT

The chart below shows the distribution of electricity prices in West Texas during the third quarter of 2023. As you can see, there are relatively more hours where the price is higher than the average revenue per megawatt hour of an S19j Pro, which is $92. Typically, Texas-based miners reduce mining activity during these periods. Based on this data, a miner in West Texas operating a batch of S19j Pro miners would theoretically have 80% uptime and reduce mining time by 20% when the electricity price exceeds the average revenue per megawatt hour of an S19j Pro miner. The average electricity price for this miner during their uptime is $33 per megawatt hour.

Steady Custody Rates in the US and Canada

Between the second and third quarters of 2023, there have been no significant changes in custody rates in the US and Canada.

According to the indices derived from business data from Luxor and Hashbranch, the national average in the US for the third quarter of 2023 (across all scales of custody) is $0.0790 per kilowatt-hour, compared to $0.0787 per kilowatt-hour in the second quarter of 2023. In Canada, the average price for the third quarter of 2023 is $0.0725 per kilowatt-hour, compared to $0.0722 per kilowatt-hour in the second quarter of 2023 (prices are in US dollars).

Average Custody Costs by US States (Q3 VS Q2 2023)

Bitcoin mining custody rates in the US, source: Hashrate Index, Hashbranch

Average hosting costs by province in Canada (Q3 vs Q2 2023)

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

In the United States, the average discount for hosting large mining farms (over 200 ASICs) and small mining farms (1-99 ASICs) in Q3 2023 is 8%, compared to 7.5% in Q2 2023; the discount for large hosting agreements relative to medium hosting agreements (100-200 ASICs) in Q3 2023 is 6.6%, compared to 5.3% in Q2 2023.

Bitcoin mining stocks rise in Q3 and then pull back

Bitcoin mining stocks started off strong in Q3 2023. Riding the wave of Bitcoin reaching $30,000, they surged in July but then sharply declined for the rest of the quarter, wiping out all the gains from the first month of the quarter.

Bitcoin mining stocks and Bitcoin returns year to date

Source: TradingView

The price trend serves as a good reminder that Bitcoin mining stocks generally exhibit high beta trading relative to the price of Bitcoin. The market typically evaluates Bitcoin mining stocks based on the price movement of Bitcoin itself rather than fundamental factors such as fleet efficiency, electricity price/power trading strategies, and operational execution. When the quantity increases, Bitcoin mining stock prices rise higher and faster, and vice versa.

The price trend is a good reminder that Bitcoin mining stocks still behave as high beta trading relative to the price of Bitcoin. Market evaluations of Bitcoin mining stocks are usually based on the price volatility of Bitcoin rather than fundamental factors such as mining machine 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.

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