Is Bitcoin Mining profitable in 2022 – Forbes Advisor

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The combination of rising energy prices and falling cryptocurrency prices has made for-profit Bitcoin (BTC) mining much more difficult.

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

Bitcoin mining profitability fell to multi-month lows in July, according to data from crypto-tracking website Bitinfocharts.com.

What is Bitcoin Mining?

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

Bitcoin miners use powerful computers to perform 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, or approximately $143,000, for mining each block of transactions in the blockchain.

Although anyone can technically mine Bitcoins, most Bitcoin mining operations are performed by companies running large-scale commercial mining setups that include 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 energy farms.

How has Bitcoin mining profitability changed over time?

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

However, Chris Kline, co-founder and COO of Bitcoin IRA, notes that there are several factors to consider when it comes to the profitability of Bitcoin mining other than the price of Bitcoin itself. same.

“Besides price, the profitability of crypto mining can be determined by a few different factors, including rising electricity rates and rising gas and energy prices, coupled with rising transactional prices,” Kline says.

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

The more electricity costs, the less profit miners can make. Rising oil and natural gas prices have pushed U.S. electricity prices up about 12.6% on average over the past year.

Despite the pressures of rising electricity prices and falling bitcoin prices, there are at least a few trends that are pointing in the right direction for bitcoin miners.

Bitcoin mining equipment

The price of Bitcoin mining equipment is a major factor in profitability. Prices for high-end and mid-range application-specific integrated circuit (ASIC) miners, the specialized chips designed for Bitcoin mining, were reportedly down about 70% from their all-time highs in 2022 when the units sold for between $10,000 and $18,000.

“GPU costs are falling rapidly, resulting in higher mining profitability,” Kline says.

Additionally, Andy Long, CEO of cryptocurrency miner White Rock Management, claims that falling Bitcoin prices are causing less efficient miners to shut down operations as they start to lose money. On the other hand, fewer total miners means more efficient miners start earning more Bitcoin as prices fall.

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

Bitcoin network hash rate

To mine Bitcoins, all computers connected to the Bitcoin network make millions of attempts to complete hashes every second of the day. A hashrate measures the number of calculations that can be performed per second, and this measure can be in the billions, trillions, quadrillions and even quintillions. One terahash, for example, equals 1 trillion hashes per second.

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

The hash price calculation includes variables such as network difficulty, bitcoin price, block bitcoin subsidy, and transaction fees.

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

The hash price of Bitcoin reached $0.412/TH per second at the end of October 2021. Today, it is only $0.104/TH per second.

While the profitability of Bitcoin mining has fallen, total mining activity remains near all-time highs.

The hashrate of the network is currently around 202.3 million TH per second, compared to 72.9 million TH per second a year ago and 6.5 million TH per second at the beginning of August 2017.

Bitcoin mining companies

As Bitcoin mining profitability plummeted in 2022, the stock prices of major crypto miners also plummeted. Fortunately, Canaccord Genuity analyst Joseph Vafi claims that the most efficient bitcoin miners always make significant profits on their rigs.

“Most of the major mining companies in our coverage have a relatively new fleet that can remain profitable at a BTC price well below current levels, as evidenced by a breakeven price of $7,000-$9,000 for the majority of between them for incremental hashrate production,” says Vafi.

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

“Overall, despite the sharp decline in the spot price of BTC, the mining model remains very profitable for most major miners,” says Vafi.

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

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

Conclusion

Several variables are involved in calculating the profitability of Bitcoin mining.

While many of these variables deteriorated during the crypto winter of 2022, the downturn helped purge the market of less efficient miners and allowed the leaders of the pack to increase their market share in anticipation of what ‘they hope to be the next cyclical uptick in crypto prices and crypto mining profitability in the coming years.