Is Bitcoin Mining Still Worth It?

 

Mining companies are in a real competition for hardware these days. Pre-orders for ASICs will take until 2023 in some cases - despite the sideways trend on the Bitcoin market. Is it even worth it?

Hardly any market is more competitive than Bitcoin Mining. After all, the added variables that determine profitability or losses are purely mathematical in nature. What is the hash rate? Where is the current bitcoin rate ? How high are the acquisition and storage costs of the mining rigs and – probably the most relevant variable – how high are the electricity costs? Taken together, these factors determine the weal and woe of the venture.

However, the current market phase is unusual for mining. Because: Bitcoin courses that leave many wishes unfulfilled meet an exploding mining market. At USD 43,000, the digital gold is trading far below the USD 100,000 forecast by PlanB for last year. And yet, mining companies are investing like there's no tomorrow . Meanwhile, the hash rate is going from all-time high to all-time high.

Mining companies are flocking to the stock market

The willingness of the miners to invest is not only proven by a look at the hash rate, but also at the stock exchange. Publicly listed mining companies such as  Canaan, Marathon Mining  and  argo have raised a total of 3.8 billion US dollars  through capital increases in 2021. 2.4 billion US dollars were raised through equity increases through IPOs alone, writes  Galaxy Digital Research  in the  2021 Mining Report .

Latest example of mining market frenzy: Sphere 3D . The company bagged a deal with NuMiners in early February for 60,000 (!) devices to be delivered by 2023, contributing a total of 26.4 exahashes per second (EH/s).

But how lucrative can mining be if the Bitcoin price doesn't cooperate? This can be assessed quite precisely with a look at the Hashprice Index.

An example: If you mine for BTC with an Antminer S19 Pro from Bitmain and pay an electricity price of USD 0.2, you will make USD 22.96 in daily revenue.

The example applies to the current hash price (revenue per terahash) of 0.2087.

The device paid for itself in less than a year. The example shows that mining with cheap electricity can currently be quite lucrative, but in Europe such electricity prices are almost nowhere to be found except in Russia.

In Germany, mining would usually be an absolute loss-making business. Instead of a profit of USD 22, one would make a loss of around EUR 10 per day at an average electricity price of EUR 0.40. So the 12,000 USD expensive Antminer does not pay off even after 10 years.

Speaking of Russia: The country is not only making a name for itself these days because of the preparations for a possible invasion of Ukraine. The share of global hashrate in the country is also increasing rapidly. According to data from the Cambridge Center for Alternative Finance , the Russian Federation is now one of the largest mining nations in the world, accounting for 11.2 percent of the total hashrate.

In view of the industry there, the discussed mining ban is off the table for the time being .

In view of the increasingly competitive mining market, it is likely to become increasingly difficult to operate the business lucratively. According to data from Coinmetrics , miner revenue per terahash is falling steadily.

In October 2021, at USD 0.4, it was twice as high as today.

Mining companies are flocking to the stock market

The never-ending expansion intentions of the (now frequently listed) mining companies are also leaving their mark on share prices. Marathon Digital , Hut8 , Riot and Co. often act like a kind of leverage on Bitcoin.

In short, it can be said that if the Bitcoin price falls, mining stocks fall even more, as can be seen here with the example of MARA.

The bottom line is that Bitcoin mining is becoming more and more professional. The USA has long since emerged as the No. 1 position and is taking on the role that China played before the mining exodus in the summer of 2021. On the one hand, this is due to the regulated legal situation in the USA and the (cost) favorable conditions in the country. Capital for investments can be raised via SPAC mergers with listed companies and listed on the Nasdaq in no time. This year alone, another seven miners are to be listed in New York.

As a look at the hash price shows, the profit margins are getting narrower and narrower. But if you buy cheap electricity, you can still mine BTC profitably at a price level between USD 40,000 and 50,000. If the Bitcoin price then rises, it's really worth it.

In the end, this also speaks for a certain bullish attitude of the miners. Because: Which Bitcoin bear would spend billions on hardware?

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