Record difficulty and falling on-chain fees have pushed Bitcoin mining profitability to its lowest level in two years, widening the gulf between miners surviving on razor-thin profit margins and those reinventing themselves as data center operators for the AI boom.
Mining was once a homogeneous industry that fluctuated in sync with the price of Bitcoin. But we have now evolved into a two-speed economy, where hash power, not energy strategy, defines success.
Bitcoin’s hash price (an industry abbreviation for miner revenue per unit of computing power) has fallen to about $42.14 per terahash per day, in the bottom 4% of its two-year range.
In the past month alone, Bitcoin has fallen 19%, and the market tightening has been exacerbated by a market-wide drop in Bitcoin to around $101,500.
The real culprit is not the spot price.
This is a structural calculation of the network itself. Difficulty has increased by 31% and hashrate has increased by 23% in the past six months. Meanwhile, rates, once supported by routine activity and crowding, have fallen to their lowest since spring. The result is pure compression, with more machines competing for less reward.
For small miners, this combination is devastating. Many businesses, especially those associated with expensive power contracts or outdated hardware, operate below their break-even point. This situation is eerily reminiscent of the troughs of previous cycles in 2020 and late 2022, when the weakest players capitulated just before rebounding.
However, this time the stress test takes place in a completely different environment. The advent of AI and high-performance computing has created a whole new escape valve for miners, allowing them to pivot their infrastructure towards non-Bitcoin workloads.
Earlier this week, Iris Energy announced a $9.7 billion, five-year agreement with Microsoft to supply AI and data center capacity, effectively repurposing part of its fleet as an HPC provider. The stock price reaction was immediate, with brokers beginning to re-evaluate IREN, Core Scientific, Riot Platforms, and Cleanspark as “AI infrastructure roles” rather than pure Bitcoin substitutes.
This change, supported by diversification of real returns, is why miner stocks can rise even as hash prices fall. The market is starting to reward grid-scale flexibility and long-term power contracts over hashed output.
The difference from traditional miners is noticeable. Companies that continue to rely solely on Bitcoin production have little room to react if margins collapse.
Miner revenues are currently at their lowest profitability level since April, as hash price readings are near multi-month lows at around $43 per PH/sec/day. These companies are still paid entirely by Bitcoin block rewards and transaction fees, and their revenue automatically decreases with each increase in difficulty.
Unless they can avoid risk or access ultra-cheap energy, they will be waiting for the next block subsidy reprieve or higher network prices.
Meanwhile, Marathon Digital shows what scale can do to compensate for tightness. The company recently reported a record quarterly profit of $123 million, driven by doubling down on both operational efficiencies and new business lines adjacent to AI hosting.
Its revenue mix is now a mix of mining and AI operations, showing how the definition of a miner is changing. Marathon’s huge energy footprint allows it to opportunistically reduce or redirect its load by selling surplus power or leasing infrastructure for HPC tasks when the economics of Bitcoin mining get tough.
This disconnect is now showing up in market data. Equity investors treat hash price weakness not as an existential risk but as a filter that separates miners with sustainable business models from those simply chasing block rewards.
As Bernstein’s latest memo states, “hash price pain will not hit AI pivot miners.” That sentiment captures an ongoing structural shift in which Bitcoin mining is evolving from a single-purpose pursuit to a multi-market data infrastructure business.
Tracking when the economic downturn will reverse: Some clear indicators.
The first is a difficulty plateau or rollover, which indicates that the unprofitable hashrate is declining offline, causing a natural rebalancing that raises the remaining miners’ share of the reward.
The second is the resurgence of on-chain fees, whether due to congestion or a new wave of demand for inscription styles. Both allow the hash price to increase without changing the price of Bitcoin.
The third, and perhaps most important, trigger is the continued expansion of AI or HPC contracts. Every new megawatt that is diverted to external workloads reduces the effective competition on the Bitcoin network and stabilizes the margins of those who remain.
Other variables are also important. Winter energy prices, power reduction incentives, and local regulations all influence who can withstand long-term economic pressures. Mergers, liquidations, and site closures typically accelerate as hash prices approach cycle lows.
Historically, this has been a contrarian signal for the market as a whole, a kind of prelude to the easing of a difficult correction and a new accumulation of miners.
The next step in difficulty is the first real test of whether this compression is maxed out. If hashrate growth stalls while fees rise, hashprice could begin to slowly mean revert toward equilibrium.
Until then, the mining industry remains divided between companies that overcome Bitcoin’s most difficult mathematical problems and those that completely rewrite it with AI.
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