Bitcoin Miners ‘Highly’ Profitable Again, China Still Dominates

At current prices, the average miner is highly profitable again, with even older gear and high-cost producers currently able to make profit, crypto investment firm CoinShares concluded in its newest report on Bitcoin mining. It also claims that China still dominates both the mining hardware manufacturing sector and mining itself, despite being in a grey area.

According to the report, due to the assumed cooling and overhead costs, since November, “the market-average, all-in marginal cost of creation, at ¢5/KWh, and 18-month depreciation schedules has decreased from about USD 6,800 to about USD 5,600.” Moreover, some miners are even able to mine Bitcoin at less than USD 3,500/btc, the researchers at CoinShares said. At pixel time, bitcoin prices stands at USD 7,720.

However, as previously reported, as bitcoin price jumped by 61% in May and competition among miners increased, Bitcoin mining difficulty reached its new all-time high, making it more difficult for miners to win the precious reward of BTC 12.5.

Meanwhile, the authors of the report calculated that at current (31 May 2019) prices and 30d average fees per block, Bitcoin miners are earning an estimated total annualized return of USD 6.2 billion per year, 94% of which come from new coins and 6% from fees. Over the course of 2018, fees brought 3% of the total revenue.

It is “certainly a welcome development for miners, particularly considering the upcoming halving of the block reward, now less than a year away.” The Bitcoin mining block reward, BTC 12.5 per block will be cut by 50% in a year. It is estimated that this will be the last halving to have a very significant impact on bitcoin price.

Furthermore, the authors estimate that China conducts 60% of global mining, with the Sichuan province alone producing 50% of global hashrate, or computing power of the Bitcoin network.

“It is important to note that Chinese miners already operate in a legal grey area, with large differences in treatment between local jurisdictions, and that concrete, large-scale coordinated action on the ground would likely be required to effectively uproot miners,” the researchers said, stressing that “certain local governments seemingly much more inclined to view the industry positively due to its vigorous revenue generation on municipal levels.”

When it comes to the other 40% of mining, Washington, New York, British Columbia, Alberta, Quebec, Newfoundland and Labrador, Iceland, Norway, Sweden, Georgia, and Iran produce 35% of global hashrate evenly. “The remaining 5% is assumed to be distributed widely enough that the global average energy mix is a good enough fit to estimate their energy sources”, it stands in the report.

Bitcoin hashrate chart:

Also, CoinShares confirmed their previous findings that the Bitcoin mining industry is heavily renewables-driven.

“Our current approximate percentage of renewable power generation in the Bitcoin mining energy mix stands at 74.1%, more than four times the global average,” the researches said adding that it’s almost 4 percentage points lower than in November 2018, which reflecting the upstart of major mining clusters in fossil-dependent regions such as Iran as well as relocation away from hydro-dependent regions such as Oregon.

“Power is the single complexity of the mining ecosystem that can be controlled or confined. You may not be able to control hashrate, price, or hardware costs/specs, but locking yourself into an advantageous electricity contract will allow for flexibility and profitability,” wrote Amanda Fabiano, Senior Program Manager at Fidelity’s Center for Applied Technology, in the foreword of the report.

The report authors, however, have stressed that the Bitcoin mining industry is still a highly private and secretive one and their estimates “may be subject to significant potential uncertainty.”

In either case, the report concludes that Bitcoin mining tends to cluster around comparatively under-utilized renewables infrastructure:

“This could help turn loss making renewables projects profitable and in time—as the industry matures and settles as permanent in the public eye—could act as a driver of new renewables developments in locations that were previously uneconomical.”