The ongoing cryptocurrency bear market has triggered a massive drop in Bitcoin (BTC) mining profitability as BTC mining costs exceed Bitcoin’s price.
Closely linked to the fall in BTC price, Bitcoin mining profitability has been declining since late 2021, hitting its lowest level in several months in early July 2022.
According to data from crypto tracking website Bitinfocharts, BTC mining profitability fell as low as $0.07 per day per 1 terahash per second (THash/s) on July 1, 2022, hitting its lowest level since October 2020.
The decline in BTC mining profitability has caused some major changes in the crypto mining industry.
Lower bitcoin prices increased selling pressure as miners were pushed to sell their BTC to continue mining and pay for electricity. The majority of the major crypto mining companies like Core Scientific have had to sell a significant amount of Bitcoin to survive the difficult market conditions.
The growing unprofitability of BTC mining has also caused a sharp drop in demand for crypto mining equipment, leading many miners to sell their mining hardware at a discount.
Because lower prices for miners with application-specific integrated circuits (ASIC) and graphics processing units (GPU) can attract new miners, it’s important to remember that the price of mining hardware is just one of many factors affecting BTC’s profitability -Mining is.
What is Bitcoin mining profitability and how is it defined?
Bitcoin mining is an economic activity that produces the digital currency Bitcoin using the computing power of GPU-based miners or purpose-built ASIC miners.
Bitcoin mining profitability is a measure that defines the degree to which a bitcoin miner is making a profit based on a variety of factors including the price of bitcoin, the difficulty of mining, the cost of energy, the type of mining hardware and others.
Factor 1: Bitcoin price and block rewards
The price of Bitcoin is one of the most obvious factors affecting the profitability of BTC mining, as the value of BTC is directly proportional to miners’ profits.
Bear markets draw even more attention to the BTC price from miners as they risk losing money if BTC falls below a certain price level.
Miners should also consider the size of the block reward, or the amount of BTC given to miners for mining a block on the BTC blockchain. Bitcoin’s original block reward was as high as 50 BTC before being truncated to the current 6.5 BTC following three historic block reward halvings.
Bitcoin halvings are a key part of the BTC protocol and aim to decrease the amount of new coins entering the network by halving the block reward every 210,000 blocks, or roughly every four years.
Factor 2: Characteristics of Bitcoin Mining Hardware
Bitcoin mining profitability largely depends on the choice of a BTC mining device and its associated characteristics such as hash rate, power consumption and price.
Hash rate is the processing power of a miner, measured in hashes per second (H/S). Higher hash rates include representations in kilohashes per second (KH/S), gigahashes per second (GH/S), terahashes per second (TH/S), exahashes per second (EH/S), and so on.
A miner’s hash rate is the speed at which they can solve crypto mining puzzles to mine Bitcoin. The higher the speed, the more BTC is mined in a given time frame. As the BTC hash rate keeps hitting new highs, bitcoin miner manufacturers are regularly producing new mining devices that support higher hash rates, while older miners seem to become obsolete over time.
Another important characteristic of a BTC mining device is the energy consumption. With rising global energy costs, a miner’s ability to use less energy is critical.
The price of the actual mining equipment is also an important cost factor when calculating BTC mining profitability. Both GPU and ASIC miners have gotten cheaper in the bear market this year, but brand new flagship miners are still costing upwards of $11,000 at the time of writing.
Factor 3: Mining Difficulty and Hash Rate
Bitcoin mining difficulty is a measure of how hard it is to mine a block of BTC, with higher difficulty requiring additional computing power to verify transactions and mine new coins.
Network difficulties have increased in 2022, continuously hitting new all-time highs. Bitcoin’s mining difficulty adjustment occurs every 2,016 blocks, or roughly every two weeks, as Bitcoin is programmed to adjust itself to meet a target block time of 10 minutes.
The Bitcoin hash rate is another fundamental metric used to gauge the strength of the BTC network, as a higher hash rate means more computing power is required to verify transactions and add them to the blockchain. This also makes BTC more secure as it would require more miners, energy and time to take over the network.
Factor 4: electricity costs
The price of electricity is another important factor when calculating the profitability of BTC mining.
Miners consider electricity prices in different countries in accordance with local crypto mining regulations. Since mining activities put additional strain on a power grid, it is important to check local requirements and specific energy prices for powering BTC miners in this or that country or region.
Bitcoin mining can be powered by many energy sources, both renewable such as wind and solar and non-renewable sources including fossil fuels such as coal, oil and natural gas. Amid rising energy prices caused by recent supply issues, miners should pay particular attention to potential impacts on BTC mining income when using non-renewable energy.
Factor 5: Pool fee if you don’t mine alone
Many bitcoin miners prefer to join mining pools rather than work as individual miners. This allows them to combine their computing power and increase the chances of finding a block and mining BTC faster.
Pool miners should be aware of another small expense borne by pool administrators setting up the software for this type of mining. The fee is usually 1-3% of the miner’s individual reward, depending on the pool.
Factor 6: Other expenses
Bitcoin mining expenses are not exclusively related to ASICs and GPUs and network indicators. BTC mining may also require some additional investments related to the physical mining facility, including facilities and land that are a good fit. Significant costs can include cooling or noise-cancelling equipment, as some mining equipment involves a tremendous amount of heat and noise pollution.
Crypto Mining Calculator
One of the easiest ways to calculate Bitcoin mining profitability based on all the listed factors is to use online BTC mining calculators.
A BTC mining calculator is designed to simplify the process of calculating Bitcoin mining profitability and predicts approximate mining income based on inputs such as BTC price, hash rate, electricity price and others.
Let’s take an example of how to calculate Bitcoin mining profitability with a brand new Bitmain ASIC Antminer S19 Pro using BTC mining calculator from crypto market data provider CryptoCompare.
Antminer S19 Pro has a max hash rate of 110 TH/s and power consumption of 3250 W. Let’s say a miner’s pool fee is 2% and the miner is based in North Dakota, where the average residential electricity price will be in 2022 is about $0.11, compared to the United States national average of about $0.14.
Related: BTC mining costs hit a 10-month low as miners use more efficient rigs
Given these variables, the daily win rate is 27%, with potential BTC mining profits being $70 per month or $840 per year, according to CryptoCompare. In contrast, given the US national average electricity price of $0.14, the daily win rate is 0% or even generating a loss with the current BTC price and other network indicators.
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