Miners Ditch BTC for AI: Hashrate Sees First Q1 Drop in 6 Years

Bitcoin's network hashrate went down in the first quarter of this year, which is the first time it has gone down in a quarter in six years. When the price of Bitcoin stayed at only $67,000, mining costs went up to almost $90,000 per coin. Miners lost a lot of money and gave up on the project, focusing on more stable and successful AI and high-performance computing (HPC) infrastructure instead. This proved that the "hashrate growth myth" about Bitcoin was not true.

Bitcoin's network hashrate is currently at about 1 Zettahash (ZH/s), down roughly 4% year to date, according to Glassnode data. The hashrate of Bitcoin has increased tenfold over the last five years, from about 100 Exahash (EH/s) to its current Zettahash level.

The hashrate has historically shown significant upward momentum in the first quarter, with annual growth frequently surpassing 10% and even nearly doubling in 2022. But this year, this trend abruptly stopped.

The mining industry's fast failing business paradigm is the primary cause of the reduction in processing power. Although the spot price of Bitcoin is just about $67,000, it is believed that the average production cost of mining one Bitcoin is currently close to $90,000. To put it another way, miners lose money as soon as they begin working.

Many large listed mining businesses have started to modify their strategies in response to this survival issue, focusing on high-performance computing (HPC) infrastructure and artificial intelligence (AI). The profits from offering AI processing power services are more steady and predictable than the erratic price of cryptocurrencies, creating a new market for mining companies to enter.

The primary means by which this wave of transformation is sustained is through the "selling of cryptocurrencies and taking on debt." They are selling off their existing Bitcoin holdings or issuing debt in order to raise funding for the construction of artificial intelligence data centers.

Miners are lowering the amount of money they are reinvesting in mining equipment. Through the implementation of this technique, the sensitivity of computing power to the values of cryptocurrencies is greatly increased. It is possible that if the prices of cryptocurrencies continue to be low, it may force more tiny individual miners out of the market, which would result in an even larger decrease in computing power.

As the amount of computer power continues to decrease, there is an inevitable rise in worries regarding the safety of the Bitcoin network. On the other hand, when viewed from a different angle, the degree of "decentralization" of the network might be more significant than the pursuit of the absolute value of processing power.

In the past, publicly traded mining corporations in the United States alone controlled more than forty percent of the computer power in the entire world. It is possible that the previously highly concentrated power of these North American titans will be diminished when they transfer their attention to artificial intelligence. It is possible that this might actually assist in the redistribution of computing capacity across the globe, which would be more advantageous to decentralization in the long term.

Despite the slowing in growth, CoinShares continues to forecast that the computing power might still increase to roughly 1.8 ZH/s by the end of 2026 if Bitcoin is able to rebound to approximately $100,000.