Is Bitcoin Mining Profitable in 2022 – Forbes Advisor

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

Bitcoin prices have been volatile this year. While the original crypto rose to $69,000 in November 2021, it sank to as low as $17,708 in June before returning to its current trading level of around $23,000.

Bitcoin mining profitability fell to a multi-month low 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 complete complex mathematical functions called hashes. The processing power required to mine Bitcoin is extremely high, but Bitcoin miners receive 6.25 BTC in reward, approximately $143,000, for mining each block of transactions on the blockchain.

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

These mining farms are often built near affordable sources of energy, such as hydroelectric dams, oil and gas wells, or solar 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 the miners have to be to make money.

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

“Along with price, crypto mining profitability can be determined by a few different factors, particularly rising electricity prices and rising gas and energy prices, combined with rising transaction prices,” says Kline.

Bitcoin mining requires almost 139 terawatt-hours (TWh) of electricity per year, which is more than the annual energy consumption of Norway.

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

Despite the pressure from 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 top- and mid-tier application-specific integrated circuits (ASIC) miners, the specialized chips made for Bitcoin mining, are reportedly down about 70% from their all-time highs in 2022 when units sold for around $10,000 to $18,000.

“GPU costs are dropping rapidly, which means higher profitability in mining,” says Kline.

Additionally, Andy Long, CEO of cryptocurrency miner White Rock Management, says lower Bitcoin prices result in less efficient miners shutting down operations when they start losing money. On the flip side, fewer total miners mean that more efficient miners start to earn more Bitcoin as prices fall.

“The genius of the system is the difficulty mechanism that 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 always be efficient miners with high-performance equipment who will continue to secure the network, says Long.

Bitcoin Network Hashrate

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

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

The calculation of hash price includes variables such as network difficulty, Bitcoin’s price, Bitcoin’s block subsidies and transaction fees.

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

Bitcoin’s hash price was as high as $0.412/TH per second at the end of October 2021. Today, it is down to just $0.104/TH per second.

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

The network’s hash rate is currently around 202.3 million TH per second, up from 72.9 million TH per second a year ago and 6.5 million TH per second in early August 2017.

Bitcoin mining companies

As the profitability of Bitcoin mining fell in 2022, the stock prices of the top crypto miners have also fallen. Fortunately, Canaccord Genuity analyst Joseph Vafi says the most efficient Bitcoin miners are still making significant profits from their rigs.

“Most of the leading miners in our coverage have a relatively new fleet that can remain profitable at a much lower BTC price than today’s levels, as evidenced by a breakeven price of $7,000 to $9,000 for a majority 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 decline in the BTC spot price, the mining model remains highly profitable for most of the leading miners,” Vafi says.

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).

The bottom line

There are several variables involved in calculating Bitcoin mining profitability.

While many of these variables have taken a turn for the worse during 2022’s crypto winter, the downturn has helped clear the market of the least efficient miners and allowed the leaders of the pack to increase market share in anticipation of what they hope will be the next cyclical upswing in crypto prices and profitability of crypto mining in the coming years.