Mining was highly profitable during the Spring and Autumn of 2021, making many miners decide to increase capacity.Since bitcoin’s all-time high on November 9th, bitcoin has plummeted 36%, but hashrate has grown by 23%. Typically, the hashrate follows the bitcoin price, but it has been different this time.Since it takes several months to manufacture mining rigs and build mining facilities, most of the capacity increases that started during the Spring of 2021 first came online at the end of 2021. Therefore, the hashrate increased while the bitcoin price fell, hammering profitability.
Source: Tradingview (Coinbase), Hashrate Index
Mining profitability started climbing again from the middle of January thanks to the rising bitcoin price. Nevertheless, capacity increases decided during the super-profitable Autumn of 2021 will likely come online in the next months. Therefore, mining profitability is likely to keep dropping unless the bitcoin price continues its short-term upward trend.In November, the market might not have considered that the mining industry would become increasingly competitive due to new capacity coming online. This underestimation by the market and the decreasing bitcoin price were all it took for bitcoin mining stocks to collapse.This massive decline should have taught bitcoin mining investors that the high beta behavior of bitcoin mining stocks is a double-edged sword.