The ongoing cryptocurrency bear market has triggered a massive decline in Bitcoin (BTC) Mining profitability as BTC mining expenditure exceeds the price of Bitcoin.
Closely linked to the fall in the price of BTC, the profitability of Bitcoin mining has been collapsing since the end of 2021 and hit multi-month lows early July 2022.
According to data from crypto tracking website Bitinfocharts, the profitability of BTC mining tumbled to as low as $0.07 per day for 1 terahash per second (THash/s) on July 1, 2022, touching the lowest level since October 2020.
The declining profitability of BTC mining has caused big changes in the crypto mining industry.
Falling Bitcoin prices fueled selling pressure as miners were pressured to sell their BTC to continue mining and pay for electricity. The majority of big crypto mining companies like Core Scientific have had to sell a significant amount of bitcoin in order to survive difficult market conditions.
The growing unprofitability of BTC mining has also triggered a sharp drop in demand for crypto mining devices, forcing many miners to sell their mining equipment at a reduced price.
Since lower prices for miners of application-specific integrated circuits (ASICs) and graphics processing units (GPUs) may generate more interest from new miners, it’s crucial to remember that the Mining hardware price is just one of the many factors behind the profitability of BTC mining.
What is Bitcoin mining profitability and how is it defined?
Bitcoin mining is an economic activity that involves the production of the digital currency Bitcoin using the computing power of GPU-based miners or specially designed ASIC miners.
Bitcoin mining profitability is a metric defining the degree to which a Bitcoin miner generates profit based on a large number of factors including Bitcoin price, mining difficulty, energy cost, type mining equipment and others.
Factor 1: bitcoin price and block rewards
The price of Bitcoin is one of the most obvious factors impacting the profitability of BTC mining, as the value of BTC is directly proportional to the profits generated by miners.
Bear markets even trigger more attention to BTC price from miners because they risk losing money if BTC drops below a certain price level.
Miners should also consider the block reward amount or the amount of BTC given to miners for mining a block on the BTC blockchain. Bitcoin’s original block reward was 50 BTC before it was cut to current 6.5 BTC after three historical block reward halves.
Bitcoin halvings are an important part of the BTC protocol, aimed at reducing the amount of new coins entering the network by halve block reward every 210,000 blocks or approximately every four years.
Factor 2: Bitcoin Mining Hardware Features
The profitability of Bitcoin mining largely depends on the choice of a BTC mining rig and the associated features, including 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 how fast they can solve crypto mining puzzles to mine Bitcoin. The faster the speed, the more BTC is mined in a specific time frame. As the BTC hash rate consistently hits new highsBitcoin miner makers regularly produce new mining devices that support higher hash rates, while older miners seemingly become obsolete over time.
Another important feature of a BTC mining device is power consumption. With rising global energy costs, a miner’s ability to consume less energy is critical.
The price of the actual mining devices is also an important expense when calculating the profitability of BTC mining. GPU and ASIC miners have become cheaper amid the bear market this year, but brand new flagship miners still cost over $11,000 at the time of writing.
Factor 3: Mining difficulty and hash rate
Bitcoin mining difficulty is a measure of how difficult it is to mine a BTC block, with higher difficulty requiring additional computing power to verify transactions and mine new coins.
Network difficulty increased in 2022, continually breaking new all-time highs. Bitcoin mining difficulty adjustment occurs every 2,016 blocks, or approximately every two weeks, as Bitcoin is programmed to automatically adjust to maintain a target block time of 10 minutes.
The Bitcoin hash rate is another fundamental metric to gauge the strength of the BTC network, as a higher hash rate means more computing power is needed to verify and add transactions to the blockchain. It also makes BTC more secure as it would take more miners as well as more energy and time to support the network.
Factor 4: Electricity costs
The price of electricity is another important factor in calculating the profitability of BTC mining.
Miners consider electricity prices in various countries in accordance with local crypto mining regulations. As the mining activity puts additional stress on an electrical networkit is important to double-check local requirements and specific energy prices for powering BTC miners in any given country or region.
Bitcoin mining can be powered by many energy sources, both renewable like wind and solar and non-renewable sources including fossil fuels like coal, oil, and natural gas. Amid soaring energy prices caused by recent supply issues, miners should pay close attention to the possible implications on BTC mining revenue when using non-renewable energy.
Factor 5: Pool fees if not mining solo
Many Bitcoin miners prefer to join mining pools instead of working as individual miners. It is a way 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 taken by pool administrators who configure 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 exclusive to ASICs, GPUs, and network indicators. BTC mining may also require additional investments related to the physical mining setup, including facilities and properties that are well suited. Significant expenses may include cooling or noise suppression equipment, as some miner machines are associated with a massive amount of heat and noise pollution.
Crypto mining calculators
One of the easiest ways to calculate Bitcoin mining profitability based on all the listed factors is to use online BTC mining calculators.
Designed to simplify the process of calculating Bitcoin mining profitability, a BTC mining calculator predicts approximate mining income based on inputs such as BTC price, hash rate, electricity price and others .
Let’s take an example of calculating the profitability of Bitcoin mining with a brand new Bitmain ASIC Antminer S19 Pro using the BTC mining calculator from crypto market data provider CryptoCompare.
Antminer S19 Pro has a maximum hashrate of 110TH/s and a power consumption of 3250W. Assume a miner’s pool fee is 2% and the miner is based in North Dakota, where the average residential electricity rate in 2022 the amounts at around $0.11, compared to a national average price in the United States of around $0.14.
Given these variables, the daily profit ratio is 27%, with possible BTC mining profits amount at $70 per month, or $840 per year, according to CryptoCompare. In contrast, given the national average electricity price in the United States of $0.14, the daily profit ratio the amounts at 0% or even generates a loss with the current BTC price and other network indicators.