Galaxy Research - 2024 Bitcoin Mining Mid-Year Report Recap
The Rise of the Gigawatt
The 2024 Bitcoin Mining Mid-Year Report from Galaxy provides a comprehensive analysis of the Bitcoin mining industry in the first half of 2024. Here’s a summary of the key points and supporting details from the whitepaper, followed by insights into what it indicates about the direction of the industry:
Key Takeaways
Market Overview: The first half of 2024 experienced significant economic fluctuations for Bitcoin miners. Miners initially saw strong profitability, but the 4th Bitcoin halving and a drop in hashprice led to a contraction in mining economics, hitting all-time lows.
Transaction Fee Volatility: The introduction of new protocols like Runes, BRC-20, and Ordinals contributed to significant volatility in transaction fees. From January to July, miners generated 12.97k BTC in fees, accounting for 55% of total fees generated in 2023.
Mergers and Acquisitions (M&A): In 2024, the sector saw a surge in M&A activity, with over $460 million in transactions. Miners consolidated to achieve vertical integration and secure power capacity, which is becoming increasingly valuable due to competition from AI and high-performance computing (HPC) demands.
Hashrate Growth: Galaxy revised its hashrate forecast for the end of 2024 upwards, expecting between 725 exahashes per second (EH/s) and 775 EH/s. This upward trend is supported by large public miners aggressively expanding their infrastructure.
Power and Infrastructure: Access to large-scale power is becoming a critical bottleneck as Bitcoin miners compete with AI and data center operators for capacity. Companies with secured power sources are in strong positions to benefit from this trend.
Market Dynamics and Economics
In Q1 2024, miners enjoyed some of the best margins in years due to the rising Bitcoin price and increasing hashrate. However, the 4th Bitcoin halving in April resulted in a sudden drop in hashprice (revenue per unit of computing power), reaching an all-time low. After a brief surge caused by transaction fees from new protocol activity, hashprice stabilized around $0.054/TH, significantly squeezing miners' margins. Many inefficient miners were forced to shut down operations, but larger players remained resilient by leveraging new-generation ASICs, which are more efficient and powerful.
Transaction Fee Volatility
2024 saw major developments in Bitcoin's transaction fee landscape. Half of all transactions on the Bitcoin network were financial, but new protocols such as Runes (35% of transactions) caused significant spikes in transaction fees, particularly during Bitcoin’s 4th halving event. This marked a significant shift in network activity, with miners capitalizing on these short-term fee surges.
Despite the volatility, miners generated nearly $900 million in fees by mid-2024, with 67% of these fees coming from standard financial transactions and 19% from Runes. This reflects the growing diversification of activity on Bitcoin beyond pure financial transactions.
M&A Activity and the Power Race
The Bitcoin mining industry saw a surge in mergers and acquisitions, largely driven by miners seeking greater control over power resources and infrastructure. With the value of power skyrocketing due to demand from both Bitcoin mining and AI/HPC, miners with large power contracts are well-positioned to thrive.
As smaller miners face liquidity challenges and struggle to maintain profitability in a low-hashprice environment, larger players are consolidating to secure long-term power agreements. Over $460 million in M&A deals were recorded in the first half of 2024, with public miners investing heavily in securing power assets at a cost of $404,000 per megawatt.
Growth and Hashrate Forecast
The report revises the end-of-year hashrate forecast upwards to a range of 725-775 EH/s. This forecast reflects aggressive expansion by public miners, who raised $1.8 billion in Q1 2024 alone to fund growth, improve efficiency, and build cash buffers. With new-generation machines coming online, the second half of 2024 is expected to see substantial growth in network hashrate.
Despite the potential for profitability challenges due to low hashprice, Galaxy’s analysis suggests that the network is capable of supporting significant hashrate increases. The mining industry is adapting to this new landscape through technological upgrades, cost optimization, and strategic expansion.
Power and AI Convergence
A major theme in the report is the convergence of AI and Bitcoin mining, as both industries vie for access to power. AI demands are increasing rapidly, with data centers consuming significantly more power than traditional industries. Bitcoin miners, with their expertise in securing and managing large power capacities, are uniquely positioned to capitalize on this trend.
AI data centers, particularly those used for training models like ChatGPT, have driven up demand for reliable power, and Bitcoin miners are pivoting to explore these opportunities. Some miners are entering hybrid models, integrating AI/HPC alongside Bitcoin mining to diversify revenue streams and improve profitability.
Conclusion and Future Outlook
The 2024 Galaxy report paints a picture of an industry that is undergoing significant transformation. The key challenges for Bitcoin miners in the near term include managing low hashprice and securing access to power, while the opportunities presented by AI and data centers are creating new growth prospects.
Moving forward, the Bitcoin mining industry is expected to consolidate further, with the largest miners continuing to expand their infrastructure and integrate AI. The focus on securing power capacity will remain central, as both AI and Bitcoin mining will drive increasing competition for energy resources. While smaller miners may struggle in this environment, well-positioned players are likely to thrive, leveraging new technologies and hybrid models to maximize profitability.
In summary, the report signals that Bitcoin mining is evolving rapidly, with a clear shift towards larger, more efficient operators who can adapt to the changing dynamics of power and technological convergence. As the industry grows more capital-intensive, miners who can secure energy and innovate will continue to lead the way forward.
Not financial or legal advice, for entertainment only, do your own homework. I hope you find this post useful as you chart your personal financial course and Build a Bitcoin Fortress in 2024.
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