Bitcoin Mining Is Profitable in 2022 – Forbes Advisor

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The combination of rising energy prices and falling cryptocurrency prices has made it much more difficult to turn a profit into Bitcoin (BTC) mining.

Bitcoin prices have been volatile this year. While the original cryptocurrency climbed to $ 69,000 in November 2021, it dropped to $ 17,708 in June before bouncing back to its current trading level at around $ 23,000.

Profitability for Bitcoin mining dropped to multi-month lows in July, according to data from cryptocurrency tracking website Bitinfocharts.com.

What is Bitcoin Mining?

Bitcoin mining is the process by which Bitcoin is verified and registered on the blockchain.

Bitcoin miners use powerful computers to complete complex mathematical functions called hashes. The processing power required to mine Bitcoin is extremely high, but Bitcoin miners receive 6.25 BTC as a reward, approximately $ 143,000, for mining each block of transactions in the blockchain.

While anyone can technically mine Bitcoin, most Bitcoin mining is done by companies that run large-scale commercial mining setups with data centers with specialized servers.

These mining farms are often built near affordable energy sources, such as hydroelectric dams, oil and gas wells, or solar power farms.

How has Bitcoin mining profitability changed over time?

Aspects of Bitcoin’s mining business are similar to mining for physical assets, such as gold or silver. The more asset prices rise, the more profitable mining becomes and the less efficient miners have to be to make money.

However, Chris Kline, co-founder and chief operating officer of Bitcoin IRA, notes that there are several factors to consider when it comes to the profitability of Bitcoin mining in addition to the price of the Bitcoin itself.

“In addition to price, the profitability of cryptocurrency mining can be determined by a few different factors, most notably the rise in electricity tariffs and the rise in gas and energy prices, along with the rise in transaction prices. “says Kline.

Bitcoin mining requires nearly 139 terawatt hours (TWh) of electricity per year, which is more than Norway’s annual energy consumption.

The more expensive the electricity, the less profits the miners can make. Rising oil and natural gas prices have increased US electricity prices on average by about 12.6% over the past year.

Despite the pressures of rising electricity prices and falling Bitcoin prices, there are at least a couple of trends moving in the right direction for Bitcoin miners.

Bitcoin mining equipment

The price of Bitcoin mining equipment is an important factor for profitability. Prices of upper- and middle-tier application-specific integrated circuit (ASIC) miners, specialized chips made for Bitcoin mining, have reportedly fallen by about 70% from their all-time highs in 2022, when units were sold for approximately $ 10,000 to $ 18,000.

“GPU costs are falling rapidly, which translates into higher mining profitability,” says Kline.

Additionally, Andy Long, CEO of cryptocurrency miner White Rock Management, says that lower Bitcoin prices mean that less efficient miners close operations when they start losing money. On the other hand, fewer total miners mean more efficient miners start earning more Bitcoin as prices drop.

“The genius of the system is the difficulty mechanism that automatically keeps the block production running, with a new block on average every 10 minutes. So, at lower prices, some miners will throw in the towel. But there will always be efficient miners with high-performance equipment who will continue to protect the network, ”says Long.

Bitcoin network hash rate

To mine Bitcoin, all the computers connected to the Bitcoin network are making millions of attempts to complete hashes every second of the day. A hashrate measures how many calculations can be done per second and this measure can be billions, trillions, quadrillions and even quintillions. One terahash, for example, equals 1 trillion hashes per second.

The profitability of Bitcoin mining is quantified as a hash price, measured in dollars per terahash (TH) per second over the past 24 hours. If you put it together, the acronym for that measure is USD / TH per second per day.

The hashprice calculation includes variables such as network difficulty, Bitcoin price, Bitcoin blocking subsidy, and transaction fees.

Bitcoin’s profitability peaked at around $ 3.39 / TH per second during the cryptocurrency market boom in December 2017.

Bitcoin’s hashprice was as high as $ 0.412 / TH per second at the end of October 2021. Today it dropped to just $ 0.104 / TH per second.

While Bitcoin mining profitability has declined, total mining activity remains close to all-time highs.

The network hashrate is currently around TH 202.3 million per second, compared to TH 72.9 million per second a year ago and TH 6.5 million per second in early August 2017.

Bitcoin mining companies

As the profitability of Bitcoin mining declined in 2022, the share prices of major cryptocurrency miners also fell. Fortunately, Canaccord Genuity analyst Joseph Vafi says the most efficient Bitcoin miners are still making a significant profit on their rigs.

“Most of the major mining companies in our coverage have a relatively new fleet that can remain profitable at a much lower BTC price than current levels, as evidenced by a breakeven price of between $ 7,000 and $ 9,000 for the most part. of them for incremental hashrate production, “Vafi says.

Vafi’s top Bitcoin mining stocks include Argo Blockchain (ARBK), HIVE Blockchain Technologies (HIVE), Hut 8 Mining (HUT), and Iris Energy (IREN).

“Overall, despite the sharp drop in BTC’s spot price, the mining model remains highly profitable for most of the major miners,” Vafi says.

Canaccord Genuity has “outperforming” ratings for each of the four mining stocks mentioned.

Other large public Bitcoin miners include Marathon Digital (MARA), Riot Blockchain (RIOT), Canaan (CAN), and Bitfarms (BITF).

Bottom line

There are several variables involved in calculating the profitability of Bitcoin mining.

While many of these variables took a turn for the worse during the crypto winter of 2022, the downturn helped eliminate less efficient miners from the market and allowed pack leaders to increase their market share in anticipation of what they hope for. will be the next cyclical recovery in cryptocurrency prices and cryptocurrency mining profitability in the coming years.

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