The conclusion of the fiscal year on December 31, 2022, was marked by newsworthy events.  Most notably, the FTX downfall, and a yearly low in the Bitcoin price of $16,547.

2022 also proved to be a tough year for Bitcoin miners. The fall in revenues and increased energy costs caused Core Scientific (CORZQ) to file for bankruptcy and entered Chapter 11 in December.  Argo Blockchain (ARBK) unintentionally published draft materials about its voluntary Chapter 11 bankruptcy filing, resulting in a temporary suspension of its stock on the London Stock Exchange.  Fortunately, the company  secured a last-minute deal with Galaxy Digital, who acquired the Helios site for $65 million, just 6 months after energization, along with a crucial $35 million loan to support their cash flow position.

Thankfully, 2023 witnessed a fairly robust recovery for both Bitcoin and North American Bitcoin miners.

Merger and Acquisitions (M&A)

During the bear cycle there was an expectation of multiple mergers and acquisitions among publicly listed North American miners. It didn’t take too long into 2023 for a merger between two mining companies in this industry to be announced.

On February 7, 2023, US BTC Corp announced an all-stock merger of equals, joining forces with Hut 8 (HUT) to form a new entity named "Hut 8 Corp." ("New Hut"). The U.S.-based company concluded the merger on November 30, 2023, marking the industry's largest M&A transaction.

This strategic consolidation aims to enhance operational efficiency across mining, high-performance computing, hosting, and managed services, leveraging a combined energy capacity of 839 MW across six sites.

Bitcoin Global Hash Rate 2023

As of January 1st, 2023, the worldwide hash rate had reached 266 EH/s. During early Q1, industry analysts and experts were frequently asked and were citing a year-end target ranging from 350 to 375 EH/s. Remarkably, these initial targets were surpassed in Q1, as the global hash rate concluded at 542 EH/s on December 31, 2023, indicating a substantial 103% increase over the course of the year.

Bitcoin Difficulty

The surge in Bitcoin's global hash rate throughout 2023 significantly influenced the cryptocurrency's difficulty level. With an influx of miners, the collective ease of solving intricate mathematical puzzles increased. Consequently, the Bitcoin network adapted its difficulty algorithm to uphold a target block time of approximately 10 minutes. The heightened hash rate prompted an automatic upward adjustment in difficulty, starting at 35 T on January 1, 2023 and concluding at 72 T on December 31, 2023, marking a 105% increase throughout the year.  This adjustment ensured the continued addition of new blocks at the desired pace.

While this dynamic mechanism enhances the integrity, stability, resilience, and security of the Bitcoin blockchain, it does impact the quantity of Bitcoin a miner can produce.  A miner maintaining the same hash rate throughout the year (not accounting for additional fees) would effectively be achieving only half of the Bitcoin production in December, than at the start of the year.

Hash rate growth in 2023

Maintaining this parity between a Bitcoin miner's hash rate and the global hash rate is imperative for competitive and economic reasons. To sustain competitiveness, contribute consistently validated blocks, and ensure profitability, miners must dynamically scale their hash rates in tandem with the evolving global hash rate. Falling behind, may lead to diminished mining rewards, prolonged block-solving durations, and a decrease in overall profitability, underscoring the significance of staying attuned to the dynamic global hash rate landscape.

In 2023, several miners significantly increased their hash rates. Iris Energy (IREN) started the year with 1.7 EH/s and witnessed a growth to 5.6 EH/s within six months, marking a 273% increase. The company has subsequently provided revised growth updates for 2024, as it builds out the Childress site in Texas, with confirmed miner machine orders aimed at reaching 11 EH/s and an additional option to acquire 9 EH/s. If exercised before year-end, this move would elevate their hash rate to 20 EH/s.

Marathon Digital experienced a substantial surge in its operating hash rate during 2023, escalating from 7.0 EH/s to 24.7 EH/s, an increase of 253%, with mining orders for a further 7 EH/s in place, to get to 32 EH/s.  The company, in addition, is also targeting a further 30% growth in energized hash rate in 2024 and with the recent acquisition of two mining sites from Generate Capital this month, the company expects to reach a new target of 50 EH/s in the next 18 to 24 months.

CleanSpark (CLSK), having been the only miner to achieve its planned growth target for 2022, continued to grow and finished the year with over 10 EH/s, an increase of 53% and consistently operating at 99% uptime.  The company expects to achieve their 2023 planned growth in early 2024. Furthermore, the company has purchased an additional 16 EH/s to get to 32 EH/s, anticipating machines to be delivered in Q2 2024.

Hut 8 Corp (HUT) increased its hashrate by 188%, Bitdeer (BTBT) by 168%, TeraWulf (WULF) by 150% and Bit Digital (BTBT) by 101%, aligning their hash rates with Bitcoin mining difficulty. Argo Blockchain and SATO Technology did not add to their hash rate during the year.

Riot Platforms (RIOT) faced challenges in 2023 due to cold weather storms affecting their immersion cooling technology. Consequently, their self-mining operating hash rate increased by only 28%.

However, with their new facility at Corsicana progressing well, deployment of a previously announced purchase order of 33,280 MicroBT miners will begin from the end of Q1 2024 taking the company to 20 EH/s.  In the second half of 2024, and for the next 12 months, a further order of  66,560 additional MicroBT miners will be deployed taking the total hash rate to 38 EH/s.

Riot Platforms have a further opportunity to acquire up to 265,000 additional miners from MicroBT under identical payment terms as the previous order, increasing the self-mining capacity by 75 EH/s, potentially surpassing a cumulative total of 100 EH/s.

Bitcoin Production 2023

In terms of self mining Bitcoin production in 2023, Core Scientific (CORZZ), having spent the whole year in Chapter 11, still had the highest production of all the North American listed miners, producing a total of 13,782 Bitcoin during the year. Core Scientific was followed by Marathon Digital with 12,843 Bitcoin, and Cleanspark with 7,391 Bitcoin.  

Hut 8 had more than its fair share of production problems in 2023, producing only 2,159 Bitcoin.  Firstly with litigation, as the company was in dispute with its energy provider Validus over power delivery timelines and payments at a cryptomine data center project in Ontario, Canada.  Validus entered creditor protection in September 2023. The company had further electrical issues at their Drumheller site, again reducing their operational hash rate.

Riot Platforms produced a total of 6,619 Bitcoin in 2023 which was lower than many analysts would have expected at the start of the year, but when you consider the impact of their energy strategy, this was understandable.

Energy Strategies provided opportunities in 2023

Texas, known for its abundant and affordable renewable energy along with supportive regulators, stands as the leading state in U.S. energy production. In 2023, key Texas-based miners including Argo Blockchain, Bitdeer, Iris Energy, and Riot Platforms strategically employed energy strategies to reduce costs. During peak months, these Bitcoin miners actively engaged in ERCOT’s 4 Coincident Peaks (4CP) program, curtailing energy usage during peak intervals in June, July, August, and September to save on subsequent year transmission costs.

Despite uncertainties regarding peak intervals until month-end, companies curtailed energy during higher-risk peak interval hours, approximately 10-15 times a month, lasting a few hours, coinciding with elevated power prices. This successful participation in 4CP exempted them from paying the transmission cost recovery factor on curtailed mWh, approximately $5 per mWh.

Riot Blockchain strategically leveraged its position in the ERCOT Energy Market, securing a long-term power purchase agreement to maintain cost-effective Bitcoin mining, crucial for the impending April 2024 halving. The agreement covers 345 MW of hedged power costs, extending through 2027 or 2030. Hedging serves to mitigate volatility risks in energy markets influenced by geopolitical events and supply dynamics.

A fixed power price enables Riot to operate continuously, minimizing exposure to market fluctuations and ensuring stable operations. In 2023, the company realized $71.6 million in total energy credits, equivalent to 2,480 Bitcoin based on the average 2023 Bitcoin price.

Mining Efficiency

North American Bitcoin miners have been preparing for the halving.  Marathon Digital, having adopted an ‘asset lite’ category, shifted 180 degrees and became owners of infrastructure currently representing 45% of their total self mining hash rate.  On paper, the hosting model looks attractive and enables more capital funds to be used for the purpose of growing hash rate.  However, the largest factor for consideration is the lack of control in terms of uptime and more importantly the reliance and unpredictability of host companies.  Marathon may be the largest miner in North America, with the most efficient fleet but from a production standpoint they have disappointed when compared to peer miners in terms of delivery.

Bitcoin Hodl

All miners were selling significant portions, if not all, of their Bitcoin production during 2023.  Marathon Digital and Hut 8 Corp both maintained a strong Bitcoin hodl, but were constantly selling an element of their production to pay for operational and capital growth.

Bitdeer, Iris Energy and Terawulf continued to sell their production each day to pay for their expansion with the full reliance on using share dilution to cover growth.

Bitcoin Production by EH/s for 2023

The table below highlights the monthly performance for each miner using a suitable comparison metric, Bitcoin mined per EH/s. By using this simple metric it is easier to compare all the mines, large and small because it expresses a total output from a level playing field.

Bitfarms had an extremely consistent year managing to finish top miner on a regular monthly basis and proving its not always the largest or most efficient miners that come out on top.  In fact Bitfarms average efficiency is 35 J/TH, not exceptional and probably close to the industry average.  Marathon Digital has an extremely low efficiency of 24.5 J/TH and yet they produced on average 15% less Bitcoin per EH/s at an average cash cost of $23,004 during 2023, compared with an average cash cost of $22,436 achieved by Bitfarms.

Hive Digital, Iris Energy and SATO Technology also achieved an average in excess of 80 Bitcoin per EH/s throughout the year.  In terms of the top 6, only 3% of production per EH/s separated them.

Hut 8 identified their problems with their energy provider at their Ontario site and then further electrical problems at the Drumheller site causing significant impact to their production.  Since the formal approval of their merger with US BTC their production has improved and with significantly more availability of sites for their self miners machines, this should continue to increase during the current year.

Share Price Performance in 2023

On reaching an all year bitcoin price low of $16,547 at the end of 2022, Bitcoin gained significant momentum by reaching $42,265 by December 31, 2023, an increase of 155%.  This increase had a significant impact on the share prices for some of the largest publicly traded Bitcoin mining companies in North America.

The graph below highlights that those savvy enough to have invested in Core Scientific, weeks after the company announced it had entered into Chapter 11 negotiations at the start of the year, would have seen the stock increase by 1,833% by the end of the year.

Marathon Digital finally achieved its growth target in North America of 23 EH/s and with additional joint venture sites performing to plan in Abu Dhabi and Paraguay, the company is now starting to produce monthly performance as many shareholders have been impatiently waiting for.  The market was reflective in their accomplishments and the stock rose by 722% during the year.

A smaller miner in terms of operating hash rate,Bit Digital, is capable of punching above their weight. With zero debt on their balance sheet, they recently announced their positioning into the HPC space with a contract originally valued at $50 million in revenues per annum, utilizing facilities in Iceland. In 2023, their stock price increased by a credible 677%.

For the year, the average increase across all the public miners in the chart below was 508%.  

On the day the article was submitted for publication, Core Scientific, announced its emergence from Chapter 11 proceedings.  The company anticipates listing its common stock and warrants on Nasdaq on January 24, 2024. The reorganization has reduced debt by $400 million through debt-to-equity conversions.