Bitcoin miners are facing a crucial test in the wake of the token’s 50 per cent plunge from an all-time high.

While many mining operations made a handsome profit during Bitcoin’s runup last year, the recent decline could punish those with less efficient operations.

Mining -- which uses powerful computers, or servers, to solve math problems and order transactions on Bitcoin’s blockchain -- is a costly business, fraught with regulatory and environmental concerns, and a price drop only complicates the situation.

Miners that aren’t as efficient, or signed more expensive power contracts, could get pushed out or gobbled up, said Matt Schultz, executive chairman of miner CleanSpark Inc. 

“When oil prices drop, the less-efficient producers in West Texas shut down. Same thing is happening here,” he said. 

The selloff comes at a vulnerable time for the industry as Kazakhstan has cut off miners’ power and Russia’s central bank has proposed a ban on miners -- meaning about 15 per cent of all Bitcoin mining power may need to relocate, by some estimates. While the sector was able to bounce back after a similar block in China, there could be more casualties this time around.

Shares of CleanSpark, Marathon Digital Holdings Inc., Bitfarms Ltd. and Hut 8 Mining Corp. are all down more than 30 per cent this year. However, companies that have used their excess cash -- either from Bitcoin’s rally, public offerings or newly issued debt -- to buy more efficient mining equipment are likely to fare better.

With Bitcoin trading near US$36,700, miners with older machinery -- which makes up about 23 per cent of computers supporting the network -- are dangerously close to the threshold where they may not make enough to cover electricity costs, let alone labor and other expenses, research from BitOoda, a digital asset fintech firm, shows. 

Meanwhile, those with newest mining servers would only be threatened with a shutdown if Bitcoin were to fall as low as US$20,000, BitOoda said. 

That means companies like CleanSpark that have recently sprung for more efficient machines, mostly the Bitmain S19 Pro, have less to worry about. CleanSpark, with operations in Georgia and upstate New York, mines about 10 Bitcoins per day and spends between US$5,000 and US$6,000 in operating costs to mine each coin. 

“So even at US$33,000 per Bitcoin we’re still tremendously profitable,” Schultz said.

Such actions also put pressure on less efficient competitors, as adding more computers to the network makes it more difficult to earn tokens. Even it Bitcoin’s price were to stay constant, miners’ revenues by the end of 2022 are expected to fall by a third simply due to increased competition, according to BitOoda. However, an industry shakeout could disrupt those expectations.

“We are all competing for the same amount of Bitcoin every day,” said Charlie Schumacher, a representative for Marathon, which recently ordered more mining gear. “If we find ourselves in a situation where it’s unprofitable for other miners to operate because they have much higher cost, we -- because of our size and scale -- would earn more Bitcoin in that situation.”

During the crypto winter of 2018, when many businesses shuttered and sold their machines, daily miner revenues dropped about 85 per cent and Bitcoin’s network hashrate -- a measure of the computing power supporting it -- dropped by more than 80 per cent, according to

Already there are signs of similar pressure. Current prices on the older mining equipment have been sliding for months, per Hashrate Index. Additionally, Bitcoin’s network hashrate has begun to fall after hitting an all-time seven-day-average high on Jan. 19, data shows. 

“Over time, if price declines continue -- or if Bitcoin’s price stagnated at current levels and hashrate increased -- some of the miners would eventually have to shut down older-generation machines,” said Sam Doctor, chief strategy officer of BitOoda. “But overall network hashrate is high enough that even large declines in it should not threaten the integrity of the network.”