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Is Bitcoin Mining Still Profitable?

Bitcoin miners are feeling the heat of the Bitcoin price crash. Bitcoin over the past several weeks is witnessing severe ups and downs from the recent highs of $10,500 to lows of $3,500 before garnering significant buying pressure that has since sent it back to its current price within the mid-$5,000 regions. The ongoing selloff has led Bitcoin miners to be largely unprofitable, also leading the crypto’s hash-rate to plummet. The shift in miner’s profitability could have implications on BTC’s price in the near-term as well, as miners are now disincentivized from selling their crypto rendering one to wonder is bitcoin mining still profitable?

Data from Bitcoin mining pool F2Pool, suggests that majority of mining pools have seen large drops in hash rates on their platforms. Hash rate is the amount of computation power that Bitcoin miners are expending to try to mine new Bitcoin while mining pools aggregate lots of smaller miners.

Huobi’s mining pool saw the largest drop in hash rate, with a loss of 26% over the past week with a drop of 20%.

Bitcoin’s dropping price is causing miners to leave the network. Image: Shutterstock.

However, the bigger mining pools saw smaller drops in hash rate. F2Pool saw a decline of 12%, Poolin, 18%, and, 10%.

According to data analytics site Blockchain, the global Bitcoin hash rate has gone down from 136 million tera hashes per second (TH/s) to 103 Th/s, in the same timeframe, a decline of over 24% !!

On this day of red, #bitcoin daily mining revenue per TH/s is suffering more than at the ~$3k #BTC price bottom in Nov/Dec 2018. Miners, take care of yourselves 😳 The network hasn't seen a significant drop in hashrate yet, but it certainly will be an interesting few weeks. — f2pool (@f2pool_official) March 12, 2020

Recent report suggests that ASIC S9 has the worst break-even rate in the market. To make a profit from mining using this hardware, the BTC price must be above $7,643.

Those miners that opted for Bitmain’s ASIC S17 are, however, keeping their heads above water. They are still making a profit as long as Bitcoin holds firmly above $3,598. Anything below that point and miners are making a loss.

Other flagship hardware for Bitcoin mining are the Innosilicon T3 + 67 and Avalon 1166. They have break-even points at $3,970 and $4,299, respectively. All these figures will need revising when the block reward is slashed in half.

Bitcoin Mining: No More Profitable Gig?

Although the cost to mine one Bitcoin varies geographically based on electricity rates, the recent selloff has largely made it unprofitable for miners to continue their normal operations. As such, many smaller miners have shut off their rigs, subsequently leading the cryptocurrency’s hashrate to plummet.

Glassnode, an on-chain analytics platform, spoke about the widespread unprofitability of mining in a recent tweet, also explaining that Bitcoin’s precarious position from a price perspective has led its hashrate to see a rapid and ongoing decline:

Due to the declining $BTC price, it is now unprofitable for many miners to continue their operations. Since its peak on March 7th, the 7DMA of #Bitcoin's hashrate has fallen by ~16% – with hashing power disappearing even faster after the drop to $5k. — glassnode (@glassnode) March 18, 2020

Miners provide Bitcoin with a steady and unrelenting flow of selling pressure, with them needing to sell their generated crypto in order to fund their operations.

When BTC’s price declines below the cost of production, however, miners generally sell the bare minimum required to fuel their operations, which relieves some of the selling pressure on the benchmark crypto.

This bolsters the cryptocurrency’s buyers and makes it easier for them to absorb the crypto’s selling pressure, and also incentivizes miners to continue accumulating as much BTC as possible so that they can sell it later at a profit.

Although Bitcoin could drop further from its current price levels, it is unlikely that it will stay too low for long, as the decline in miners selling should help give bulls some decent momentum.

Digital asset manager Charles Edwards shares a chart on Twitter saying that the current Bitcoin price level is becoming unprofitable for miners:

#Bitcoin miners now unprofitable. Bitcoin Electricity Cost tested, this is the point where miners start to turn off rigs, b/c the electricity bill is more than 1BTC. These conditions don't last long. Expect we hold (mostly) above $5000, and then start to see Hash Rate drop. — Charles Edwards (@caprioleio) March 13, 2020

Currently, he explains, the cost of an electricity bill for mining BTC is higher than the price of one Bitcoin. If the current situation holds much longer, Edwards says, Bitcoin miners may start switching off their gear and getting out of the business.

A Twitter user has asked a similar question about Bitcoin mining to the founder of Quantum Economics, Mati Greenspan:

Some miners will drop out. The hashrate goes down. Difficulty adjusts, making it easier for new miners to enter the market. Bitcoin continues producing blocks uninterrupted. — Mati Grrrrrreenspan (tweets aren't trading advice) (@MatiGreenspan) March 13, 2020

Mining Difficulty Warding Off Miners?

Bitcoin’s mining difficulty rate recalibrates roughly every two weeks. This means that as more miners add to the network’s hash rate, the difficulty of the PoW increases, making finding new block rewards more difficult. If miners were to stop mining, the difficulty would decrease to keep the equilibrium.

Bitcoin’s hash rate is currently at 121,637,666 tera hashes. As hash rate increases and more miners secure the network, Bitcoin’s price sometimes follows it up.

As the difficulty increases it makes the network much harder to attack.

Mining is very competitive and successful mining outfits are usually operating on very thin margins of profitability. It usually causes smaller less profitable miners to be absorbed by larger and more efficient firms.

To see the difficulty increase this close to the halving is usually perceived as being very bullish. The increased cost of production of new BTC, and reduced supply of newly minted coins, adds upward price pressure causing prices to rise.

Miners who manage to stay in operation and survive the halving, usually become more profitable as a result. Much of the hype surrounding the halving usually cause an onslaught of new users, which kickstarts demand for BTC, also causing prices to rise.

Although mining as an industry tends to centralize, as larger miners survive and smaller miners die off, they still end up becoming more profitable incentivizing more miners, even though the rewards are less frequent, they are still more valuable.


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