Bitcoin Mining Profitability Under Pressure: Understanding the Hash Rate Decline and Industry Pivot

The Bitcoin network is experiencing a significant squeeze on mining profitability as the computational power supporting the world’s largest cryptocurrency contracts sharply. The hash rate—which measures the total computational capacity securing Bitcoin transactions—has declined approximately 15% from its October peak, falling from around 1.1 ZH/s to roughly 977 EH/s. This pullback reflects a broader challenge: while bitcoin mining has scaled dramatically since 2020, the economic fundamentals supporting mining operations have deteriorated considerably. Meanwhile, at current Bitcoin price levels around $87.88K, the profitability picture has shifted, forcing miners to make difficult decisions about the future direction of their operations.

The Perfect Storm: Declining Revenues and Rising Pressures

The erosion of bitcoin mining profitability has become unmistakable. Data indicates that miners’ average daily block reward revenue per EH/s reached just $38,700 in December 2025—down 7% month-over-month and a staggering 32% year-over-year, marking a new low for the industry. Glassnode’s Hash Ribbons indicator reversed direction on November 29, signaling increased stress among network participants. Meanwhile, mining difficulty is projected to adjust downward to approximately 139 T on January 22, representing the seventh decline within eight consecutive periods—clear evidence of the capitulation cycle.

The underlying economics reveal why miners are struggling. Two structural forces compress mining margins simultaneously: the periodic halving of block subsidies creates a “stepwise” revenue reduction, while the global hash rate has expanded at a compound 62% growth rate since 2020. This dual pressure forces mining operators to continuously escalate infrastructure investment (CAPEX) just to maintain competitive positioning, let alone improve profitability. Without corresponding increases in Bitcoin’s price, the margin squeeze becomes mathematically inevitable.

The sustainability challenge is starkly illustrated through equipment economics. The Antminer S19 XP—a high-end mining rig—has seen its break-even electricity threshold drop from approximately $0.12/kWh in December 2024 to about $0.077/kWh by December 2025. This compression indicates that marginal mining economics have deteriorated significantly, creating stronger dependency on low-cost electricity access, operational scale advantages, and efficiency optimization. A Guojin Securities report highlighted that mining costs for US-listed companies had already exceeded current Bitcoin prices during Q3 2025, climbing to $112,000 per coin.

Mining Farms Face a Strategic Crossroads: The AI Data Center Opportunity

Confronted with compressed profitability, large-scale mining operations are exploring a transformative pivot toward artificial intelligence infrastructure services. The arithmetic is compelling: crypto mining farms possess precisely the infrastructure AI enterprises desperately need—powered-up facilities with substantial bandwidth capacity positioned near metropolitan areas, combined with electricity acquisition costs typically ranging between 3-5 cents per kWh. This cost structure and physical positioning make these assets naturally suited for AI cloud computing operations.

Industry analysts project that fourteen major US-listed mining companies alone will accumulate approximately 15.6 gigawatts of power capacity by 2027. The transition toward AI services is unfolding through two primary business models. The first model—exemplified by CoreWeave and Nebius—involves purchasing semiconductor chips to offer cloud computing services directly to AI clients. IREN operates within this framework, currently operating 2.91 gigawatts of total capacity with 1.9 gigawatts deployed for computing services. The company has already secured a partnership with Microsoft covering 200 megawatts of capacity, positioning it favorably despite trading at a lower market valuation per watt compared to pure-play AI infrastructure specialists.

The alternative approach mirrors traditional data center operations: mining operators lease facility rights and power capacity to third parties, who then manage their own server deployments and electricity consumption. This model dominates among existing mining farms in transition. Some companies have negotiated leasing arrangements with tech giants including Google and Amazon, while those entering the market later remain in partnership discussions.

The Counterintuitive Thesis: Why Hash Rate Declines May Prove Constructive

Yet the narrative may not be entirely pessimistic. VanEck’s analysis suggests that hash rate compression could actually function as a bullish indicator for Bitcoin’s longer-term returns. By correlating 30-day hash rate changes since 2014 with subsequent 90-day return expectations, the data reveals an intriguing pattern: Bitcoin’s expected returns improve when hash rate momentum turns negative compared to periods of hash rate growth.

The historical evidence is compelling. During the 346 individual days since 2014 when 90-day hash rate growth was negative, Bitcoin generated positive 180-day forward returns 77% of the time, with an average gain of 72%. Conversely, in all other periods, positive 180-day returns occurred just 61% of the time, averaging 48%. This implies that strategically purchasing Bitcoin during hash rate pressure periods has historically enhanced 180-day expected returns by approximately 2,400 basis points.

The theoretical foundation rests on industry consolidation dynamics. Near-term profit compression and hash rate volatility typically accelerate market concentration—where less efficient operators exit and capital consolidates among better-positioned participants. This doesn’t necessarily presage permanent mining sector decline; rather, it suggests evolutionary pressure toward sustainability and efficiency. Even amid challenging economics, numerous entities continue mining operations, suggesting the industry possesses structural resilience beyond short-term profitability cycles.

In essence, the current squeeze on bitcoin mining profitability may represent a transitional inflection point rather than a terminal decline. The shift toward AI infrastructure, combined with historical patterns suggesting hash rate compression precedes positive returns, paints a picture of an industry in transformation rather than retreat.