Cost of Mining a Bitcoin: Are BTC miners Currently in Profit or Loss?
Bitcoin is currently trading around $7,100. But what exactly is the cost of mining this BTC?
Recently, Canada-based Bitcoin mining company Hut 8 released its financial report for the three and nine months ended September 30, 2019, where it stated a revenue of $26.7 million and a mining profit margin of 58%.
The company mined Bitcoin at a cost of $4,363 per BTC that included electricity cost, mining pool fees, and other production costs.
However, trader Ceteris Paribus clarified that $4.3,k only includes operating costs and left out expenses, depreciation, and net financial expenses. Adding all these expenses to this, he said would give us a cost of $7,100 to mine one Bitcoin.
In the short term, the trader explained that even if the price of the digital asset goes under $7,100, miners will keep on mining bitcoin because it would still be more than the operational cost. Mining equipment meanwhile is a sunk cost, money that is already spent and can’t be recovered.
As such, in the long term, this won’t be the case because miners would need to pay their employees, bear financial costs, and replace equipment.
Last week, Twitter user Bitcoin Theory also calculated the coast of mining a BTC that came to be $6,603.
Bitcoin mining rate: 54000 Bitcoins per 30 days
Bitcoin hash rate: ~100000000*10^12 H/s
Antminer S17 Pro: ~53*10^12 H/s, ~2.1 kWh
1 kWh Cost: $0.1
Cooling Cost: 25% of energy consumption
Time: 30*24 hours
((100000000*10^12)/(53*10^12)*2.1*0.1*1.25*24*30)/54000 = $6603.77 pic.twitter.com/6CoLNm6ttC
— Bitcoin Theory (@TheoryBitcoin) November 20, 2019
Although the cost of electricity would be cheaper than $0.1 for big miners, the enthusiast explained not every miner uses Antminer S17 Pro. Also, he didn’t take into account the costs of renting, taxes, salaries, network equipment, depreciation of equipment, and security among other expenses.
In the Bitcoin mining industry, China is the dominating power that accounts for 70% of the global mining operations. It also has the cheapest electricity supply. According to blockchain.com, India and the US are its nearest competitors with 4% and 1% of total mining share respectively.
While crypto trading is banned in China, mining is not. Also, in a surprising policy shift last month, China removed it from a list of activities set for elimination.
However, as we reported, mining is not only easy to regulate but also provides taxation benefits, unlike crypto exchanges that helped fuel speculation and capital flight in China.
In less than Six Months, Miners’ Reward to be Cut in Half
Hashrate, the speed of the miner’s performance also plays an important part in this. On Oct. 23, it peaked at 110.6 Th/s after a continuous growth since December 2018 and currently recording 76.7 Th/s.
After each ATH #bitcoin price drops until a lot of miners aren't profitable. Miners switch off hardware (capitulate), hashrate drops, and difficulty adjusts downwards .. until miners become profitable again and difficulty rises. Difficulty bottom (100%) starts a new bull market🚀 pic.twitter.com/IgriE3GkPq
— PlanB (@100trillionUSD) August 21, 2019
Mining difficulty, which is a measure of how difficult it is to find a hash is registering at 12.97 trillion down from 13.69 trillion hit on Oct. 24.
When it comes to mining Bitcoin, miners are currently getting 12.5 BTC for completing a block. When Bitcoin was first mined in 2019, it was 50 BTC and after the third reward halving in May 2020, this would get reduced to 6.25 coins.
As such, the reward halvings affect the profitability of a miner.
However, during the last three bull runs in 2011, 2014 and 2017, Bitcoin saw a return of 318,864%, 58,474%, and 11,960% respectively. The reward halving that creates a supply shock has acted as a catalyst for these bull runs.
From the high of $31.90 in 2011, in 2017 we registered $20,000 per BTC which covers those lost profits much handsomely.