Block reward mining on the BTC network may not be dying, but priests are hovering in the background, ready to break out the last rites if things don’t improve pronto.
Worse, the BTC network’s next mining difficulty adjustment scheduled for Saturday (19) is currently expected to increase the difficulty of ‘finding’ a new block on the chain by more than 5% to over 134 trillion hashes (guesses).
That’s still a smidgen below the nearly 139 trillion average of this June and well below the nearly 156 trillion peak set nearly one year ago. But with BTC surrendering much of its recent price surge, any difficulty increase is unwelcome.
A new CoinShares report on mining’s performance during the second quarter of 2026 spells it out plainly, as the trying times “pushed the listed mining sector below cash breakeven in aggregate.”
While BTC’s price has rebounded from the US$58,400 price it held at the end of Q2, it hasn’t stopped the flood of miners ‘pivoting’ to the more lucrative revenue streams to be had from serving as data centers for artificial intelligence (AI) and other high-performance computing (HPC) tasks.
CoinShares identified three ‘defining themes’ of mining in Q2, including the fact that many pivoting miners were happily paying for the privilege of canceling orders for new ASIC rigs. While CoinShares stressed that BTC mining “is not dying” (emphasis in the original), it did acknowledge that miners are shifting their focus “to capture what is a lucrative and seemingly secular tailwind” in AI/HPC.
With hash price (revenue generated per unit of computing power) sinking to record lows in H126 and many ASIC mining rigs performing below breakeven, CoinShares admits “these figures look ominous.”
But CoinShares claims this math reflects previous periods following the ‘halving’ of the block reward every four years: “an initial decline, a recovery midway through the cycle, and a surge in activity roughly a year before the next halving” (scheduled for spring 2028).
Nonetheless, CoinShares notes that “at present, AI is a far more financially attractive proposition for miners, generating annualized profits of approximately US$1.5 million per MW on our estimates, compared with just US$0.5 million for mining.” The report claims this math could look different if there was “a sustained rise” in BTC’s price, but the conditions that might produce such a rally went unexplained.
Looking ahead to the current quarter, CoinShares sees “at least 35 EH/s” (exahashes per second), leaving listed mining operators as they minimize or outright halt mining operations in favor of AI/HPC. That represents ~4.7% of the network’s current hashrate.
The report also suggests “a BTC recovery is unlikely to reverse the AI transition,” given that AI/HPC revenue “should accelerate through H2 2026.” The AI/HPC revenue run rate is expected to “more than double” by the time CoinShares issues its Q3 retrospective.
One potential positive for miners is the belief that ASIC prices are “likely to soften” thanks to reduced demand, which “should improve upgrade economics for miners that remain committed.”
Another contributing factor to mining’s dire economics is the lack of significant transaction fees, which in Q2 ranked “persistently below 1% of block rewards.” That’s a legacy of the highly publicized gelding of BTC’s functionality in 2017 that left the network capable of little more than producing a few speculative assets every 10 minutes.
While miners might save their bottom lines by pivoting to AI/HPC, mining will only survive long-term if it pivots back to Satoshi Nakamoto’s original Bitcoin plan, under which the size of individual blocks on the chain would expand to accommodate exponentially more transactions than BTC is currently capable of handling.
The fees from those transactions would help offset the halving of the block rewards, which as of 2028 will fall to just 1.5625 tokens per block. Without that offset, BTC’s price will need to soar to stratospheric heights just to convince any miners that it’s worth sticking around.
Gas up
CoinShares noted that miners with “contracted AI or HPC capacity” are trading at an average of 12.9x enterprise value over the next 12 months (EV/NTM) vs. just 3.7x for miners lacking such contracts. And the growing pushback in many U.S. states against the spread of data centers “is turning energized sites into scarce assets … Existing grid access is becoming increasingly valuable.”
Local utilities have started restricting access to their grids as the onslaught of new mega-deals between data centers and AI/HPC clients reaches absurd heights. As CoinShares notes, “the US interconnection queue stands at roughly 2,600GW, more than the country’s entire installed capacity, with data centres accounting for 87% of [Texas utility] ERCOT’s 410GW large-load queue.”
But public electricity might not prove the bottleneck some fear. Some AI developers are putting down data center roots in areas where natural gas is abundant, allowing them to build on-site gas plants to power their racks of GPUs.
This could have dire implications for the planet, at least in climate terms, as it’s estimated that these new AI plants could consume ~18 billion cubic feet of natural gas by 2035. That’s twice the volume from forecasts just nine months ago and would represent more gas consumption than Germany and Japan combined.
But, we hear you say, surely there are regulatory constraints that would prevent such a dramatic rise in gas production/consumption. Enter the Trump administration, whose Environmental Protection Agency (EPA) just revoked Biden-era greenhouse gas requirements for U.S. power plants and further proposed “rescinding every remaining greenhouse gas standard for the power sector.”
These changes would apply not only to gas but also to coal-fired emissions. The EPA itself suggested, “coal production for power sector use is expected to increase by more than 10 times.” (Excuse us, we’re just going to buy ourselves one of those red hats to see whether they actually say Make America China Again.)
El Reno’s hands tied re booting rogue miner
Electricity isn’t the only scarce resource that both mining and AI can negatively impact. Consider the illegal mining operation in El Reno, Oklahoma that installed a wonky fire hydrant that failed last month, spilling nearly four million gallons of water and leaving many local residents, merchants, and schools without H2O.
When city officials discovered that operators Athlon Blockchain Technology had been issued a stop-work order in June 2023 but simply ignored the edict, and no public official ever followed up on the matter, the locals got out their pitchforks and torches and began baying for blood.
This week, El Reno officials held a hearing into the debacle, at which they and Athlon attorneys (but not its executives) discussed what violations the company had committed and how they were going to make things right.
Incredibly, despite the site having operated for three years without permission, the city appears ready to give Athlon another shot. The city has given Athlon 30 days in which to decide whether they want to restart the site’s operations (with the necessary permits). There doesn’t appear to have been any talk of financial penalties or compensation for the individuals and businesses affected by the spill.
Oklahoma passed a law (the Blockchain Basics Act) in 2024 that effectively requires cities to permit mining operations in industrial areas and bars them from rezoning areas to keep miners out. The legislation is the work of the Satoshi Action Fund, a Dennis Porter-led advocacy group, and similar bills have been adopted in multiple U.S. states.
Local media outlet KFOR quoted state Sen. Mary Boren, who voted against the Blockchain Basics Act, saying “these industries are led to believe that Oklahoma is easy pickings, that that you can come in and get what you want and take what you want … you’re incentivizing shoddy work and you’re incentivizing a lack of infrastructure that can really impact the lives of people around them.”
Ethiopia and El Niño cut off miners
Water is causing Ethiopia to question its own approach to mining and the wisdom of allocating energy to activities that benefit the few at the expense of the many. Ethiopia once rolled out the welcome mat for miners, but stopped issuing new mining permits a year ago as miners’ power demands became untenable.
This week, Ethiopia went one step further, throttling power delivery to miners in response to the El Niño weather pattern that has exacerbated local drought conditions. Water inflow to Ethiopian Electric Power Corp’s (EEP) hydroelectric reservoirs has fallen 20%, requiring drastic measures if the country’s manufacturing and residential sectors want to keep their lights on.
EEP’s CEO Ashebir Balcha told investors that the utility originally cut miners’ supply to 75% of the contracted amount. “When there was no improvement we reduced to 50% and now we reached 23%.” EEP will reassess its position in October and could further limit miners’ juice and possibly even curtail power exports to neighboring countries.
Ethiopia has power deals with 39 mining operators, of which 31 are currently operational. Many of the miners are Chinese firms that were forced to transfer their operations abroad after China launched a crackdown on mining in 2021. Over one-third of EEP’s revenue comes from these miners, but each BTC they produce consumes enough juice to power nearly 15,000 Ethiopian households for an entire year.
Illegal mining: Things are tough all over
Dealing with licensed mining operators can be challenging enough, but countries around the world continue to wrestle with rogue miners tapping into local grids without local permission. Electricity is the single largest mining expense, so if you can eliminate it entirely, mining economics suddenly look a lot rosier.
Earlier this month, El Pais reported on a “large-scale electricity theft” in central Mexico’s remote Puebla region. Puebla’s Public Security Secretariat, in conjunction with Mexico’s Attorney General’s Office, the Federal Electricity Commission and the Navy, seized ~300 mining rigs drawing unauthorized power generated by the Nueva Necaxa dam.
A Puebla official said the unauthorized mining farm featured a ‘large-scale’ electrical/tech infrastructure, satellite internet antennae and “a very large power connection.” The authorities suspect a possible cartel connection and are investigating whether the mining was intended to generate digital assets to assist money laundering operations. Three similar illegal mining sites in the same vicinity were rumbled last year.
In Malaysia, police have uncovered a string of vacant storefronts being used as illegal mining venues. The stores reportedly belong to owners who either don’t live in the same communities or who were traveling abroad and neglected to suspend the buildings’ electrical contracts. Raids on multiple venues in different towns resulted in the seizure of several hundred mining rigs, but so far, no arrests.
In Oman, where the government recently launched a national digital mining pool via a partnership with Enegix Global, the Ministry of Commerce, Industry and Investment Promotion has warned against the sale or supply of mining gear to individuals or entities lacking a local license.
The goal is to both safeguard the Sultanate’s electrical grid and prevent unauthorized financial transactions. Those who fail to heed the Ministry’s warning will face fines and other ‘administrative sanctions.’
In Russia, where geographical restrictions on mining are all the rage, the Federal Antimonopoly Service (FAS) is looking to prohibit electricity companies from offering power to mining operators. A bill has reportedly been drafted and will be submitted to the Duma in the near future, according to the FAS’s deputy chief.
Russia is keen to boost its native AI infrastructure and, with every kilowatt counting towards that goal, mining appears to be the preferred sacrificial lamb. Earlier this year, the president of Russia’s Data Center Industry Association suggested converting mining sites to data centers to free up the necessary power supply.
And just as it seems Russia’s mining sector is on its last legs, the Federal Tax Service has updated its tax software package to allow miners to more easily report their meager mining gains for taxation purposes. The ‘one-click miner report’ is intended to make life easier for Russian miners, who must feel like they’re on the wrong end of a very bad joke here.
Watch: Bitcoin Mining meets AI at Mining Disrupt 2025
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