The combination of rising energy prices and falling cryptocurrency prices has made it much more difficult to make a profit mining Bitcoin (BTC). In 2023, BTC witnessed a recovery after a series of unpredictable events such as the FTC decline, Terra Luna crash, macroeconomic conditions, and Binance’s guilty plea.
BTC rose by an average of 0.39 in July 2023 and showed a strong recovery in the last few months of the year, trading at around $38,000. As of February 6, 2024, BTC is worth $42,895 with a market cap of $841.63 billion.
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What is Bitcoin mining?
Bitcoin mining is the process by which Bitcoins are verified and recorded on the blockchain.
Bitcoin miners use powerful computers to perfect a complex mathematical function called a hash. Although the processing power required to mine Bitcoin is very high, a Bitcoin miner receives a reward of 6.25 BTC, approximately $143,000, for mining each block of transactions in the blockchain.
Although technically anyone can mine Bitcoin, most Bitcoin mining is done by companies running large commercial mining setups with data centers with dedicated servers. It is.
These mining farms are often built near affordable energy sources, such as hydroelectric dams, oil and gas wells, and solar energy farms.
How has Bitcoin mining profitability changed over time?
The Bitcoin mining business aspect is similar to mining physical assets such as gold and silver. As asset prices rise, mining becomes more profitable and the efficiency required for miners to make money decreases.
However, Chris Klein, co-founder and chief operating officer of Bitcoin IRA, points out that there are several factors to consider when it comes to the profitability of Bitcoin mining beyond the price of Bitcoin itself. .
“Aside from price, the profitability of crypto mining is determined by several different factors, including rising electricity prices, rising gas and energy prices, and rising transaction prices, among others,” Klein says.
Mining Bitcoin requires approximately 139 terawatt hours (TWh) of electricity per year, which is more than the annual energy consumption of Norway. The more expensive electricity becomes, the less profit miners can make.
Despite the pressures of rising electricity prices and falling Bitcoin prices, there are at least some trends moving in the right direction for Bitcoin miners.
bitcoin mining equipment
Bitcoin mining equipment price is a key factor in profitability. Prices for the upper and mid-tier of application-specific integrated circuit (ASIC) miners, which are specialized chips made for Bitcoin mining, reportedly rose in 2022 with units selling for around $10,000 to $18,000. It is down about 70% from its all-time high in 2017.
“GPU costs are falling rapidly, which translates into increased profitability for mining,” Kline said.
Furthermore, Andy Long, CEO of cryptocurrency mining company White Rock Management, said that due to the drop in Bitcoin prices, inefficient miners will start losing money and shut down operations. Conversely, a lower total number of miners means that as the price falls, more efficient miners will start earning more Bitcoins.
“The great thing about this system is that the difficulty mechanism keeps block production running automatically, with a new block being generated every 10 minutes on average. Therefore, when the price is lower, some “Miners will throw in the towel. But there will always be efficient miners with high-performance equipment that will continue to protect the network,” Long says.
Bitcoin network hashrate
To mine Bitcoin, every computer connected to the Bitcoin network makes millions of attempts to complete the hash each day. Hashrate measures the number of calculations that can be performed per second, and this measurement can be in the billions, trillions, quintillions, or even quintillions. For example, 1 terahash is equivalent to 1 trillion hashes per second.
Bitcoin mining profitability is quantified as the hash price, measured in dollars per terahash (TH) per second over the past 24 hours. When you combine them all, the acronym for that measurement is USD/TH per second per day.
The hash price calculation includes variables such as network difficulty, Bitcoin price, Bitcoin block subsidy, and transaction fees.
Bitcoin profitability peaked at around $3.39/TH per second during the crypto market boom in December 2017.
Bitcoin hash price reached $0.412/TH per second as of late October 2021. Although the profitability of Bitcoin mining has declined, the total amount of mining activity remains near all-time highs.
The network’s hashrate is currently around 520 million TH per second, up from 76.5 million TH per second in early August 2017.
bitcoin mining company
As the profitability of Bitcoin mining declined in 2022, the stock prices of top crypto miners also fell. Fortunately, Canaccord Genuity analyst Joseph Vafi says the most efficient Bitcoin miners are still making hefty profits with their rigs.
“Most of the major mining companies we cover have relatively new fleets that are able to remain profitable even with BTC prices well below current levels. This is evidenced by the fact that the break-even price for most companies is between $7,000 and $9,000,” Vuffi says.
Top Bitcoin mining stocks selected by Vafi include Argo Blockchain (ARBK), HIVE Blockchain Technologies (HIVE), Hut 8 Mining (HUT), and Iris Energy (IREN).
“Overall, despite the sharp decline in BTC spot prices, the mining model remains highly profitable for most of the major miners,” Vafi said.
Canaccord Genuity earns an “Outperform” rating in each of the four mining stocks mentioned.
Other large public Bitcoin miners include Marathon Digital (MARA), Riot Blockchain (RIOT), Canaan (CAN), and Bitfarms (BITF).
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Several variables come into play when calculating Bitcoin mining profitability.
While many of these variables turned for the worse in the crypto winter of 2022, this economic downturn has helped to clear the market of the least efficient miners, and the market has grown in anticipation of what the leaders of the pack expect. This enabled us to expand our market share. Cryptocurrency prices and the profitability of crypto mining are expected to rise cyclically in the coming years.