Bitcoin miners are enjoying an extremely lucrative period of operations after recent price rises and difficulty drops.
This is a contributing article from JOHN LEE QUIGLEY, Director of Research at HASHR8
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- Miner profitability is at its highest level since September 2019
- A strong price performance in Q4 has significantly increased miner revenue but a shortage of mining machines has prevented new hashrate from coming offline
- Hashrate has dropped over the two most recent difficulty adjustments with Sichuan electricity shortages being the likely reason
Fifteen Month High for Miner Profitability After BTC Price Rises
Bitcoin miners are enjoying their most profitable mining conditions since September 2019, a time when the difficulty of mining was 36% lower. Bitcoin price performance in recent months has been the key driver behind the widening profit margins.
Since the start of Q4, Bitcoin price has increased by roughly 150%. The price of BTC recently surpassed $28k and market participants continue to hold bullish outlooks. The Crypto Fear and Greed Index – a sentiment indicator that analyzes various metrics – is reporting close to record highs for investor bullishness.
However, the price rises are not the only factor fostering profitable conditions for Bitcoin miners. Hashrate has not only failed to keep pace with price rises over the past month but has actually dropped.
Hashrate failing to follow price movements is rare as higher prices allow more miners to operate profitably and bring hashrate online. However, the two most recent difficulty adjustments have both recorded declines, indicating that hashrate is dropping. The difficulty of mining decreased by 0.38% and 2.54% on the 28th and 14th of December respectively.
Sichuan Hashrate Forced to Come Offline Amid Electricity Shortage
The hardware market is certainly one factor preventing hashrate from coming online. The two leading Bitcoin ASIC manufacturers – Bitmain and MicroBT – are both reportedly sold out until May 2021. However, this doesn’t explain why difficulty could be dropping.
A difficulty drop of 16.05% in November, the largest decline since ASICs began mining Bitcoin, corresponded with the end of rainy season in Sichuan. As electricity prices rose at the end of rainy season, a significant amount of hashrate went offline as mining machines began transitioning to other regions in search of lower electricity prices.
While the recent difficulty drops are less pronounced, they may also be explained by the end of rainy season. HASHR8 has received reports that there is currently a shortage of electricity in the Sichuan region, forcing some facilities to turn their mining machines off.
The rising BTC price has likely caused significant amounts of hashrate to come online. However, given the prominence of Bitcoin mining in Sichuan, the hashrate coming offline in this region could certainly outsize the hashrate coming online in other regions. Previous estimates have placed Sichuan’s share of the Bitcoin network hashrate between 9.66% and 37.4%.
This is resulting in the rare scenario where Bitcoin price rises but the difficulty of mining drops. Miners are benefiting in both directions as the price appreciation improves top-line revenue and the difficulty declines reduce the cost per Bitcoin mined.
However, the profitability of any given miner will depend on their own specific setup and cost structure. Juri Bulovic – Director of Bitcoin mining at Fidelity – believes that many miners are currently mining Bitcoin at a cost less than $10,000 per BTC mined. With Bitcoin trading at roughly $27k, many miners are undoubtedly enjoying extremely lucrative returns.