How has the Recent Price Drop impacted Bitcoin Miner Profitability?

Even the most inefficient bitcoin miners look likely to still be mining profitably after significant bitcoin price drops during trading last week. Data provided by research firm TokenInsight suggests that the most efficient Bitcoin miners are mining at large margins.

Quick take;

  • Bitcoin price significantly declined last week but little adjustment in Bitcoin hash rate estimates suggest few miners are turning their hardware offline
  • Taking the cost of production of publicly listed Bitcoin mining company Hut8 Mining as an estimate for an inefficient Bitcoin miner would suggest the most inefficient miners are still slightly profitable at current price levels
  • Data from TokenInsight highlights that efficient miners using both old-gen and latest-gen hardware remain highly profitable at current market prices
Bitcoin price declined over 18% during trading last week

Bitcoin price declined over 18% in trading last week. With mining costs remaining relatively steady in the face of such declines, profit margins for bitcoin miners have significantly tightened. Over the course of the week, average daily bitcoin mining revenue declined roughly 15%.

Despite the drop in bitcoin mining revenue, it appears that most miners are remaining online. Bitcoin hash rate estimates remain close to record highs.

Seven-day moving average of Bitcoin hash rate

Based on estimates from Bitinfocharts, the hash rate hit record highs around the end of October with the seven-day moving average recording values above 100 EH/s. A hash rate drop was observed shortly after this corresponding closely with the end of rainy season in Sichuan. Estimated hash rate values still remain around 90 EH/s suggesting most bitcoin miners remain online.

Estimating Mining Cost of Production – Bitcoin Miners Remain Profitable

Each Bitcoin mining operation has its own cost of production based on the details of the operations. Factors such as hardware, electricity costs, cooling costs, and capital expenditure will result in widely varying cost of productions for different Bitcoin mining operations.

Hut8 recently published their Q3 financial results reporting a mining cost of production of $4.4 k. However, an analyst has estimated their real cost of production for mining one bitcoin to be closer to $7.1 k when other relevant expenses excluded in their accounting procedure are taken into consideration.

However, the expenses of a public company such as Hut8 will not be relevant to most miners. Hut8 Mining has substantial financing expenses while also having to deal with the expenses associated with being a publicly listed company such as compliance and hiring an auditor.

$7.1 k may be more suitable as an upper bound for estimates of how much cost mining operations incur per bitcoin mined. With bitcoin price currently trading in the mid-$7k range, this would suggest that even the more inefficient Bitcoin miners are remaining profitable.

If this is the case, it would explain why we are observing little change in the bitcoin hash rate estimates despite the price drop. We reached out to Beijing-based research firm TokenInsight to get data on the current cost of production to mine one bitcoin for different types of bitcoin mining hardware at varying electricity prices.  

TokenInsight Highlights Bitcoin Miner Profitability

TokenInsight provided MinerUpdate with data highlighting the electricity cost of mining one bitcoin for different hardware. At an electricity rate of roughly $0.05 per kWh, the electricity cost to produce one bitcoin with latest gen-equipment ranged from roughly $2.5 k to $3.5 k giving a significant buffer for other expenses.

Old-gen bitcoin mining hardware had an electricity cost of roughly $5.5 k to $6.5 k per bitcoin mined with some models having a cost in the high $6,000’s. These older bitcoin hardware models may be approaching the point where they are no longer profitable when other expense factors are taking into account.

What About the Most Efficient Bitcoin Miners?

The profitability picture significantly changes when we consider the most efficient miners. Large-scale bitcoin miners in some regions in China and overseas such as Kazakhstan can access rates at sub-$0.03 per kWh.

The data TokenInsight provided us with shows that at roughly $0.03 per kWh, Bitcoin miners using latest-gen hardware can have an electricity cost as low as $1,400 per bitcoin mined. With electricity cost being the most significant operational cost bitcoin miners are subject to, efficient miners are still mining at huge margins.

If we estimate cooling and other operational costs to be 15% of electricity expense, the cost figure rises to $1,610. Add on top of this some estimates for depreciation and other relevant costs and we get the clear picture that efficient miners are mining bitcoin for a significantly lower price than current market prices.

Even with old-generation equipment, the electricity cost incurred per bitcoin mined is mostly under $3 k. These machines may be approaching the point where they are no longer profitable when electricity rates are higher but they are currently still largely profitable for efficient bitcoin miners.

If bitcoin price continues to decline another 20% to 60%, we will likely observe many of the more inefficient bitcoin miners forced to turn their equipment offline. While this will also squeeze the margins of the most efficient bitcoin miners, they will be positioned to benefit from the subsequent decrease in mining difficulty level and capitalize heavily on any price increases that may follow this.