Factors Affecting BTC Mining Profitability

The ongoing cryptocurrency bear market has triggered a massive decline in Bitcoin (BTC) mining profitability as BTC mining expenses exceed the price of Bitcoin.

Closely linked to the drop in the BTC price, Bitcoin mining profitability has been declining since late 2021, reaching multi-month lows in early July 2022.

According to data from crypto-tracking website Bitinfocharts, BTC mining profitability fell to as low as $0.07 per day per 1 terahash per second (THash/s) on July 1, 2022, reaching its lowest level since October 2020.

The decline in BTC mining profitability has caused some major changes in the crypto mining industry.

Lower Bitcoin prices led to selling pressure as miners were pressured to sell their BTC to continue mining and pay for electricity. The majority of major crypto mining firms like Core Scientific had to sell a significant amount of Bitcoin to survive the tough market conditions.

The increasing unprofitability of BTC mining has also triggered a huge drop in demand for crypto mining equipment, prompting many miners to sell their mining hardware at a discount.

Since lower prices of application-specific integrated circuits (ASIC) miners and graphics processing units (GPUs) may increase the interest of new miners, it is important to remember that the price of mining hardware is only one of many factors behind the profitability of BTC mining.

What is profitability in Bitcoin mining and how is it defined?

Bitcoin mining is an economic activity that involves the production of the digital currency Bitcoin using the computing power of GPU-based miners or specifically designed ASIC miners.

Bitcoin mining profitability is a measure that defines the extent to which a Bitcoin miner makes a profit based on a wide variety of factors, including the price of Bitcoin, the mining difficulty, the cost of energy, the type of mining hardware, and others.

Factor 1: Bitcoin price and block rewards

The price of Bitcoin is one of the most obvious factors affecting the profitability of BTC mining, as the value of BTC is directly proportional to the profit made by the miners.

Bear markets trigger even more attention to the BTC price from miners because they risk losing money if BTC falls below a certain price level.

Miners should also take into account the amount of the block reward or the amount of BTC given to miners for mining a block on the BTC blockchain. Bitcoin’s original block reward was as much as 50 BTC before it was cut to the current 6.5 BTC after three historic block reward halvings.

Bitcoin halvings are an important part of the BTC protocol, which aims to reduce the amount of new coins entering the network by halving the block reward every 210,000 blocks or roughly every four years.

Factor 2: Features of Bitcoin mining hardware

Profitability of Bitcoin mining largely depends on the choice of a BTC mining unit and related characteristics, including hash rate, power consumption and price.

Hash rate is the processing power of a miner, measured in hashes per second (H/S). Higher hash rates include representations in kilohashes per second (KH/S), gigahashes per second (GH/S), terahashes per second (TH/S), exahashes per second (EH/S), and so on.

A miner’s hash rate is the speed at which it can solve crypto mining tasks to mine Bitcoin. The faster the speed, the more BTC is mined in a certain time frame. As the BTC hash rate keeps breaking new highs, Bitcoin miners regularly produce new mining units that support higher hash rates, while older miners apparently become obsolete over time.

Another important feature of a BTC mining unit is the energy consumption. With rising global energy costs, a miner’s ability to consume less energy is critical.

The price of actual mining equipment is also an important expense when calculating BTC mining profitability. Both GPU and ASIC miners got cheaper amid the bear market this year, but brand new flagship miners still cost more than $11,000 at the time of writing.

Factor 3: Mining difficulty and hash rate

Bitcoin mining difficulty is a measure of how difficult it is to mine a BTC block, with a higher difficulty level requiring additional computing power to verify transactions and mine new coins.

Network problems have increased in 2022, constantly breaking new records. Bitcoin’s mining difficulty adjustment occurs every 2,016 blocks, or roughly every two weeks, as Bitcoin is programmed to adjust itself to maintain a target block time of 10 minutes.

The Bitcoin hash rate is another fundamental metric for assessing the strength of the BTC network, as a higher hash rate means more computing power is required to verify and add transactions to the blockchain. This also makes BTC more secure because it will take more miners as well as more energy and time to take over the network.

Factor 4: Power costs

The price of electricity is another important factor when calculating the profitability of BTC mining.

Miners consider electricity prices in different countries in accordance with local crypto mining regulations. Since mining activity puts additional stress on a power grid, it is important to double-check local requirements and specific energy prices to power BTC miners in this or that country or area.

Bitcoin mining can be powered by many energy sources, both renewable such as wind and solar and non-renewable sources including fossil fuels such as coal, oil and natural gas. Amid skyrocketing energy prices caused by recent supply issues, miners should be especially aware of possible implications on BTC mining earnings when using non-renewable energy.

Factor 5: Pool fee if not mining solo

Many Bitcoin miners prefer to join mining pools instead of working as individual miners. It is a way to combine their computing power and increase the chances of finding a block and mining BTC faster.

Pool miners should be aware of another small expense charged by pool administrators who set up the software for this type of mining. The fee is usually 1-3% of the miner’s individual reward, depending on the pool.

Factor 6: Other expenses

Bitcoin mining expenses are not exclusive to ASICs and GPUs and network indicators. BTC mining may also require some additional investment related to the physical mining setup, including facilities and real estate to suit. Significant expenses can include equipment for cooling or noise reduction, as some mining machines are associated with a huge amount of heat and noise.

Crypto mining calculators

One of the easiest ways to calculate Bitcoin mining profitability based on all the listed factors is to use online BTC mining calculators.

Designed to simplify the process of calculating Bitcoin mining profitability, a BTC mining calculator predicts the approximate mining income based on inputs such as BTC price, hash rate, electricity price and others.

Let’s take an example of calculating Bitcoin mining profitability with a brand new Bitmain ASIC Antminer S19 Pro using the BTC mining calculator from crypto market data provider CryptoCompare.

Antminer S19 Pro has a maximum hash rate of 110TH/s and power consumption of 3250W. Let’s assume a miner’s pool fee is 2% and the miner is based in North Dakota, where the average residential electricity price in 2022 is about $0.11, versus the US national average price of about $0.14.

Related: BTC mining costs hit 10-month low as miners use more efficient rigs

Given these variables, the daily profit ratio is 27%, with possible BTC mining profits of $70 per month, or $840 per year, according to CryptoCompare. In contrast, given the US national average electricity price of $0.14, the daily profit ratio is 0% or even generates a loss with the current BTC price and other network indicators.