Bitcoin Mining Profitability Hits 2-Year Low as AI Boom Divides Industry
Record difficulty and falling on-chain fees have pushed bitcoin mining profitability to its lowest level in two years, creating a growing divide between miners surviving on razor-thin margins and those reinventing themselves for the AI boom as data center operators. The bitcoin mining industry, once a homogenous sector that moved in sync with the price of Bitcoin, is now becoming a two-speed economy where hashpower determines success, not energy strategies.
At around $42.14 per terahash per day, Bitcoin’s hash price (the industry’s shorthand for miner revenue per unit of computing power) has fallen into the bottom 4% of its two-year range. This significant decline has fallen 19% in the last month alone, while Bitcoin’s decline to around $101,500 has only added to the pressure in the broader market.
The Structural Math of the Network: A Key Factor in Mining Profitability
The real culprit behind the decline in mining profitability is not the spot price of Bitcoin, but rather the structural math of the network itself. Difficulty is up 31% in the last six months, hashrate is up 23%, while fees, once boosted by ordinal activity and congestion, have fallen to their lowest level since the spring. The result is pure compression, with more machines fighting for fewer rewards. For smaller miners, this combination is devastating, with many operating below breakeven, especially those tied to expensive electricity contracts or older hardware.
The situation is eerily reminiscent of previous cycle lows in 2020 and late 2022, when the weakest players capitulated just before a rebound. However, this time, the stress test is taking place in a very different environment: the emergence of AI and high-performance computing has created an entirely new outlet for miners, allowing them to target their infrastructure towards non-Bitcoin workloads. Earlier this week, Iris Energy announced a five-year, $9.7 billion deal with Microsoft to provide AI and data center capacity, effectively converting part of its fleet into an HPC provider.
Diversification and Adaptation: The Key to Survival in the Mining Industry
This shift, anchored by real income diversification, is why miner stocks can rise even as hash prices fall. The market is beginning to reward grid-wide flexibility and long-term power contracts over hash production. The contrast to the old miners is great, with companies that remain tied exclusively to Bitcoin production having little room to maneuver if margins collapse. Miner profits are now at their lowest level of profitability since April, with hash price values near multi-month lows at around $43 per PH/s/day.
Meanwhile, Marathon Digital shows what size can do to offset the crisis, with the company recently reporting record quarterly profits of $123 million by doubling both operational efficiencies and new lines of business beyond AI hosting. Its revenue mix is now a mix of mining and AI activities, showing how the definition of a miner is changing. Marathon’s massive energy footprint allows it to opportunistically throttle or redirect load, sell excess power, or lease infrastructure for HPC tasks as the economics of Bitcoin mining tighten.
Tracking the Downturn: Signs of a Potential Reversal
The divergence is now visible in the market data, with equity investors viewing hash price weakness not as an existential risk, but as a filter separating miners with sustainable business models from those merely chasing block rewards. As Bernstein’s recent note states, “the hash price pain will not affect AI pivot miners.” This sentiment reflects the current structural shift as Bitcoin mining moves from a single-purpose business to a multi-market data infrastructure business.
There are several clear signs that the downturn might reverse, including a difficulty plateau or rollover, which indicates that the unprofitable hash rate drops offline, creating a natural rebalancing that increases the remaining miners’ share of the rewards. A resurgence in on-chain fees, whether due to congestion or a new wave of inscription demand, can also increase the hash price without changing the price of Bitcoin. The further expansion of AI or HPC contracts is another potential trigger, with each new megawatt diverted to external workloads reducing effective competition on the Bitcoin network and stabilizing margins for those who remain.
Other variables also play a role, including winter energy prices, energy conservation incentives, and regional regulations, all of which influence who can survive an extended period of economic pressure. Mergers, liquidations, and site closures typically accelerate as the hash price approaches its cycle lows. Historically, this has been a contrarian signal to the broader market, a sort of prelude to difficulty adjustment relief and renewed miner accumulation.
For more information on the current state of the bitcoin mining industry, visit CryptoSlate.
