The worst might just be over for bitcoin miners after solid January

If energy prices continue their downward spiral and the price of bitcoin (BTC-USD) doesn’t fall back to the mid-teens, then “I think that’s going to be quite good” for bitcoin miners and “I suspect the worst is over” for them, Christopher Bendiksen, Bitcoin Research Lead at CoinShares, told Seeking Alpha in a recent interview.

Indeed, in recent months, natural gas prices have erased much of last year’s exceptional gains buoyed by Russia’s war in Ukraine, partly due to an unusually warm winter. That in turn could bode well for bitcoin (BTC-USD) miners because lower energy/electricity prices would boost their profitability, which largely depends on their ability to secure cheap power.

Another major source of miners’ profitability is the price of bitcoin (BTC-USD), the downward momentum of which over the last year has been unfavorable for the troubled industry. Year-to-date, though, the token has notched notable gains, climbing around 30% as of Friday afternoon.

These dynamics appear to have partly been reflected in many of the nine publicly-traded bitcoin (BTC-USD) miners’ January statistics analyzed by Seeking Alpha. The average bitcoins mined surged 18.3% from a month ago, while the average hash rate increased 5.0%, as seen in the table below. Note that Hut 8 Mining (NASDAQ:HUT), Greenidge Generation Holdings (NASDAQ:GREE) and Sphere 3D (NASDAQ:ANY) have yet to publish their January numbers.

On a less positive note, the so-called difficulty of bitcoin (BTC-USD) mining, a measure of how hard it is to mine a new block for the blockchain, was at an all-time high of 39.35 trillion as of Feb. 6 versus 34.09 trillion in the month-earlier period, according to Blockchain.com data. While a higher difficulty suggests the network is more secure against attacks, it also means that more computing power is required to mine the same number of BTC blocks, in a move that hampers miners’ profitability. That said, the bitcoin network’s estimated hashrate, which measures how much computing power is being used to process transactions on the blockchain, stood at 277.49M terahashes per second (TH/s), down slightly from its 295.09M TH/s record high on Jan. 29 and up from 270.91M Th/s a month ago.

There are, however, some positive developments to look forward to, chiefly the upcoming bitcoin (BTC-USD) halving event, in which the reward for mining BTC transactions gets cut by 50%. In theory, the number of new bitcoins entering circulation (token supply) declines while demand stays the same, thus the price of bitcoin should climb. BTC halving occurs every four years (or every 210K blocks) and the next one is estimated to take place some time in 2024. “If it’s anything like previous cycles, then the ‘halvening’ should have a positive narrative effect on bitcoin (BTC-USD) demand,” Bendiksen pointed out.

“After the halving, we probably need to be moving into the $30K’s, at least, for a lot of the miners to be comfortable,” he added, while noting miners have different cost bases. Bitcoin (BTC-USD) changed hands at $21.72K at the time of writing.

For bitcoin (BTC-USD) miners, “the name of the game is still going to be survival,” Bendiksen contended, as some miners like Greenidge (GREE) and Stronghold Digital Mining (NASDAQ:SDIG) are in the midst of restructuring debt. Still, others such as Core Scientific (OTCPK:CORZQ) filed for bankruptcy protection. “Into the halving I think it’s going to be all about reducing hash costs and making sure that liabilities are not coming due in the time after that.”

And in an effort to raise cash, cover costs and improve margins, some miners continued to offload a portion of their bitcoin (BTC-USD) holdings. Riot Platforms (NASDAQ:RIOT), for instance, said it sold 700 BTC during January to generate proceeds of around $13.7M.

“That obviously has an exacerbating effect on market downturns and adds to the volatility,” he said. “It kind of just makes everything worse.”

Seeking Alpha contributor Knox Ridley provided a multifaceted analysis into bitcoin (BTC-USD) signaling the potential for a larger trend reversal.