Bitcoin Mining Crisis: AI Pivot Splits Industry Amid Profit Plunge

Bitcoin mining profitability has plunged to its lowest levels in two years, with the industry’s key metric – hashprice – falling to approximately $42.14 per terahash per day, placing it in the bottom 4% of its two-year range. The 19% monthly decline comes despite Bitcoin maintaining a relatively strong price position around $101,500, highlighting that the crisis stems from structural network dynamics rather than spot price weakness. The real culprits are clear: network difficulty has surged 31% over the past six months while hashrate has grown 23%, creating a scenario where more machines are competing for fewer rewards.

The compression is particularly severe due to the collapse of on-chain fees, which have faded to their lowest levels since spring after being previously bolstered by ordinal activity and network congestion. This combination of rising computational requirements and declining revenue streams has created what industry analysts describe as ‘pure compression,’ with mining operations facing their most challenging economic environment since the cycle troughs of 2020 and late 2022. For smaller miners tied to high-cost electricity contracts or operating older hardware, the situation has become devastating, with many now operating below break-even levels.

The mining industry is evolving into a two-speed economy, with a widening chasm emerging between traditional Bitcoin-only operations and those successfully pivoting to AI infrastructure services. The contrast became starkly evident when Iris Energy announced a $9.7 billion, five-year deal with Microsoft to supply AI and data-center capacity, effectively repurposing part of its mining fleet into a high-performance computing provider. The market reaction was immediate, with brokers beginning to re-rate IREN, Core Scientific, Riot Platforms, and Cleanspark as ‘AI infrastructure plays’ rather than pure Bitcoin proxies.

This fundamental shift explains why miner equities can rally even as hashprice falls – investors are now rewarding grid-scale flexibility and long-term power contracts over pure hash output. Marathon Digital exemplifies this transition, recently reporting a record $123 million quarterly profit by blending operational efficiency with new AI hosting business lines. The company’s vast energy footprint enables it to curtail or redirect load opportunistically, selling excess power or leasing infrastructure for HPC tasks when Bitcoin mining economics tighten.

Meanwhile, firms that remain tied exclusively to Bitcoin production face severe limitations. These companies are still paid entirely in Bitcoin block rewards and transaction fees, revenues that automatically decline with each increase in network difficulty. With hashprice readings around $43 per PH/s/day near multi-month lows and miner earnings at their lowest profitability levels since April, these operations have little room to maneuver unless they can hedge exposure or access ultra-cheap energy.

Equity investors are treating the hashprice weakness not as an existential risk to the entire sector, but as a filter separating miners with sustainable business models from those merely chasing block rewards. As Bernstein’s analysis noted, ‘hashprice pain won’t hit AI-pivot miners,’ capturing the structural change underway where Bitcoin mining is evolving from a single-purpose pursuit into a multi-market data infrastructure business. This sentiment reflects a fundamental reassessment of what constitutes value in the mining sector.

Several clear markers could signal when the current downturn might reverse. The first is a difficulty plateau or rollover, indicating that unprofitable hashrate is dropping offline and creating natural rebalancing that lifts remaining miners’ share of rewards. The second potential trigger is a resurgence in on-chain fees, whether from network congestion or a new wave of inscription-style demand – either development could lift hashprice without any change in Bitcoin’s market price.

The third and perhaps most consequential factor is the continued expansion of AI or high-performance computing contracts. Each new megawatt diverted to external workloads reduces effective competition on the Bitcoin network, stabilizing margins for those who remain in pure mining. Other variables including winter energy prices, curtailment incentives, and regional regulations will also influence which operations can survive a prolonged period of economic pressure, with mergers, liquidations, and site closures typically accelerating when hashprice nears cycle lows.