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

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The profitability of bitcoin mining, closely related to the fall in the price of BTC, has been declining since the end of 2021 and reached its lowest level in several months at the beginning of July 2022.

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

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The declining profitability of BTC mining has caused a big change in the crypto mining industry.

The decline in bitcoin prices spurred selling pressure as miners were forced to sell their bitcoins in order to continue mining and pay for electricity. Most major crypto mining companies, such as Core Scientific, have had to sell a significant amount of bitcoin in order to survive in tough market conditions.

The growing unprofitability of BTC mining has also caused a significant drop in demand for cryptocurrency mining devices, resulting in many miners selling their mining equipment at a discount.

Since lower prices for specialized integrated circuit (ASIC) and graphics processing unit (GPU) miners may generate more interest from new miners, it is important to remember that the price of mining equipment is only one of many factors that affect the profitability of BTC mining.

What is bitcoin mining profitability and how is it determined?

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

Bitcoin mining profitability is a measure of the extent to which a bitcoin miner is profitable based on a large number of factors, including the price of bitcoins, mining difficulty, energy cost, type of mining equipment, and others.

Factor 1: Bitcoin Price and Block Reward

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

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

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

Bitcoin halving is a core part of the BTC protocol, which aims to reduce the number of new coins entering the network by halving the block reward every 210,000 blocks, or roughly every four years.

Factor 2: Bitcoin Mining Hardware Specifications

The profitability of bitcoin mining largely depends on the choice of BTC mining device and its associated characteristics, including hash rate, power consumption, and price.

The hashrate is the computing power of the miner, measured in hashes per second (H/S). Higher hash rates include representations in kilohash 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 hashrate is the speed at which it can solve crypto mining puzzles for bitcoin mining. The higher the speed, the more BTC is mined over a certain period of time. As the BTC hash rate is constantly breaking new records, bitcoin mining makers regularly release new mining devices that support higher hash rates, while older miners seem to become obsolete over time.

Another important characteristic of a BTC mining device is power consumption. With rising global energy costs, the ability of a miner to consume less energy is essential.

The cost of real mining devices is also an important expense when calculating the profitability of BTC mining. Both GPU and ASIC miners have fallen in price in this year’s bear market, but new flagship miners are still worth over $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 block of BTC, with higher difficulty requiring additional processing power to validate transactions and mine new coins.

In 2022, the complexity of the network grew, constantly reaching new all-time highs. Bitcoin mining difficulty adjustment occurs every 2016 blocks, or about every two weeks, as Bitcoin is programmed to self-adjust to maintain a block time target 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 processing power is required to validate and add transactions to the blockchain. It also makes BTC more secure as more miners will be needed to take over the network, as well as more energy and time.

Factor 4: Electricity cost

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 cryptocurrency mining regulations. As mining activities place additional strain on the power grid, it is important to double check local requirements and specific energy prices to power BTC miners in a given country or region.

Bitcoin mining can be powered by many sources of energy, both renewable, such as wind and solar, and non-renewable sources, including fossil fuels such as coal, oil, and natural gas. With energy prices skyrocketing due to recent supply issues, miners should pay particular attention to the possible impact on BTC mining revenues when using non-renewable energy.

Factor 5: Pool fees if not mining alone

Many Bitcoin miners choose to join mining pools rather than work as individual miners. This is a way to combine their computing power and increase the chances of finding a block and speeding up BTC mining.

Pool miners should be aware of other small costs that pool administrators incur when installing software for this type of mining. The commission is usually 1-3% of the individual miner reward, depending on the pool.

Factor 6: Other expenses

Bitcoin mining costs are not limited to ASICs, GPUs, and network indicators. Mining BTC may also require some additional investment related to the physical setup of mining, including suitable facilities and real estate. Significant costs can include cooling or noise reduction equipment, as some mining machines are associated with huge amounts of heat and noise pollution.

Cryptocurrency mining calculators

One of the easiest ways to calculate bitcoin mining profitability based on all of the above factors is to use online bitcoin mining calculators.

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

Let’s take a look at an example of how to calculate Bitcoin mining profitability with the new Bitmain ASIC Antminer S19 Pro using the BTC mining calculator from CryptoCompare, a cryptocurrency market data provider.

The Antminer S19 Pro has a maximum hashrate of 110TH/s and a power consumption of 3250W. Let’s assume that the miner pool fee is 2% and the miner is based in North Dakota where the average residential electricity rate in 2022 is amounts to about $0.11 compared to the US average of about $0.14.

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

Considering these variables, the daily profit ratio is 27% with a possible profit from BTC mining. component up to $70/month or $840/year, according to CryptoCompare. In contrast, with an average U.S. electricity price of $0.14, the daily profit factor amounts to 0% or even generate a loss with the current BTC price and other network indicators.