30 Aug Mining amid Crypto market crash: How does it impact profitability?
As bitcoin faces a considerable blow, the mining market feels the pain. The miners witness their profits falling prolifically. As the value of the cryptocurrency dip, the difficulty of mining them doesn’t get any easier.
Bitcoin mining revenue which is defined by its hash price has fallen more than 65% since its peak in 2021.
The Hash price is a Bitcoin mining metric that is used to calculate the potential revenue generated by one unit of mining. The profit is dependent on the hash rate the mining machine offers. Hashrate is measured in dollars per TeraHash (TH) per day. If the price is USD 0.10/TH then an ASIC machine offering 100 TH will generate USD 10 every day.
The two main factors which play a role in determining the hash price of a Bitcoin are the coin’s value and its mining difficulty. The difficulty directly impacts the computational power required to mine one bitcoin. This changes every 2 to 3 weeks based on the competition on the network. If the miners produce blocks quickly, this results in difficulty getting higher. Similarly, if the mining of the blocks slows down, the network decreases the difficulty level. In the last year, 18 out of 26 adjustments were to increase the difficulty level of mining. There was a negative impact when China put a ban on cryptocurrency mining. This happens on rare occasions.
Hash price also drops when the price of Bitcoin sees a fall, which is what is happening today. However, it’s also a period when the difficulty is at an all-time high, which makes things confusing for miners. Bitcoin mining stocks have dwindled 60% during the current market crash.
What does thinning of margins mean for miners?
Many of the known public companies which mine bitcoin continue to make profits. Since their setup is huge, even if their profitability is cut in half, they continue to make profits. Perhaps not as much as before, or how they anticipated. The market will be tougher for miners who invested in their machines in 2021. Moreover, miners with expensive operating costs because of more energy consumption or hosting.
However, each miner’s situation is different. There are operational costs other than electricity costs. Nonetheless, mining margins are thinning and the operational costs increase.
Many public and industrial miners have a low cost of production so the high-end players aren’t breaking a sweat.
You never know if this state will stay consistent. As the days go on, and the crypto market seems to stay in its downfall, no one can predict how it’ll be for the big players either.
Those who will survive this market, are likely to thrive as well. The miners who spoke big words during the bull but couldn’t keep their promises during the bear will probably get gobbled up. Miners who invest in cheap assets, and purchase rigs now, will enter the market to gain higher profitability.
If you are a miner, you might want to weigh where you stand in the cryptocurrency market. Patience is a virtue and will take you a long way if you strategize your next move.