Miner Weekly: Pubcos’ Q3 Gross Margin Plunge

Oct 15, 2022

The average was estimated to be 26% in Q3, down from 70% in Q1

In last week’s issue, we pointed out that bitcoin’s hashprice was going to set all-time lows. As expected, it has gone under $70 per PH/s, even lower than in the months following the 2020 Halving.

But what’s different from more than two years ago is the rising energy cost, which is further squeezing bitcoin mining’s gross margin like never before. This is especially painful for public mining companies: in addition to the much-squeezed gross margin, they also have higher SG&A (selling, general, and administration) expenses than private firms.

Based on data disclosed by 13 public mining companies, we estimate that the average gross margin of their self-mining businesses has declined from nearly 70% in Q1’22 to 57% in Q2’22, and was further down to 26% over the past quarter. And this does not include other general expenses like compensation and insurance.

Although public miners are yet to release their Q3 earnings, we estimated their respective mining revenues and cost of mining revenues based on 1) their monthly production results, 2) bitcoin’s average prices from July to September, and 3) their estimated Q3 cost of mining revenues per BTC, which is based on the numbers in Q2 and adjusted with the cost growth rate in Q2 over Q1.

If any of the three parameters – bitcoin’s prices, mining difficulty, and energy costs – do not significantly reverse throughout Q4’22 and into Q1’23, we could see a wider capitulation and industry consolidation until the market tide turns.