Last Updated: 4 June 2022
Bitcoin miners have managed to keep all their mining profits for a long time. However, this was at a time when the profitability of the industry was high and the bitcoin price was still hovering around its all-time high. Now we are more than 50 percent away from that and some miners are also starting to sweat.
Miners’ profitability under pressure
The falling prices have a logical effect on the profitability of miners. In principle the mining industry is a fairly simple business: you invest capital in hardware, connect the hardware to the power grid and convert your capital into bitcoin. As long as the bitcoin price is rising and your production costs are lower than the revenues, you can keep a large portion of your bitcoin.
Currently we have been struggling with an ailing bitcoin price for months and some miners are beginning to feel the pain of this. Even the bigger players within the mining industry are now indicating that they may have to sell some of their holdings. A good example is Marathon Digital. This listed miner has over 9,600 bitcoin on its balance sheet, most of which they had been holding for over two years.
Riot Blockchain and Cathedra Bitcoin
Two major players on the exchange who have already put their bitcoin on sale are Riot Blockchain and Cathedra Bitcoin. Riot sold around $10 million worth of bitcoin in April. This involved a sales order of around 250 bitcoin. Cathedra Bitcoin announced that it had to sell 235 bitcoin at a price of 29,152 dollars (27,694 euros) each.
Cathedra Bitcoin chose to do this to cover itself against further falls in the price. Especially to avoid having to sell a larger portion of their bitcoin stock at those times. So what you see now is bitcoin miners taking a defensive position, something we have seen little to none of in recent years.
Is mining no longer profitable?
Bitcoin mining remains profitable despite the relatively low prices. We are more than 50 percent away from the all-time high and this has given miners’ margins a serious knock. The graph below shows that the profitability of bitcoin mining is also highly dependent on the available equipment. Assuming a certain price per megawatt hour, the difference between an Antminer S19 and an Antminer S9 at 287.5 percent is huge.
The profitability of the Antminer S9 machines is frighteningly close to the current prices. However, for the Antminer S19 to operate at a loss, a lot has to happen. But if the hashrate continues to rise and new machines come onto the market, the Antminer S19 could also be in trouble.
With bitcoin prices falling, the shares of major bitcoin miners are also coming under increasing pressure. Especially when reports come out from miners about the (possible) sale of their bitcoin to keep the business going. For this part of the industry it is to be hoped that we have reached the bottom, otherwise for some companies a very painful period may be ahead.