ViaBTC | Crypto Mining on the Rise: Key Thresholds and Risks Every Miner Must Know
Many have made a fortune during the recent BRC-20 boom. In addition to early investors, who are the biggest winners, BTC miners also earned handsome profits. The Bitcoin network has seen a spike in average transaction fees since early May. On April 8, miners earned approximately 21.8 BTC in transaction fees, but by May 8, the figure had surged to 635.3 BTC, a 29X growth within just a month. According to Dune, as of May 19, the total fees generated by BRC-20 amounted to 1,153.06 BTC, or around $30.899 million.
It is well known that BTC miners make their earnings from two sources: block rewards and transaction fees. Despite the current bearish market conditions, the huge transaction fees generated by the BRC-20 craze have attracted more miners to join the BTC mining community. Over the past seven days, the BTC hashrate has kept rising, which indicates the addition of a new batch of mining machines.
In fact, when it comes to mining cryptos like BTC, miners can only mitigate the relevant risks via a thorough examination of the thresholds, as well as adequate preparation.
Thresholds of BTC Mining
In the early days, as there were few participants, it only took a regular PC to mine Bitcoin, so miners could keep producing BTC at home. However, as the industry rapidly scaled up, the business model saw significant changes. During this shift, ASIC mining machines replaced CPUs and GPUs. This, coupled with the expensive commercial electricity and immense noises exceeding 90 decibels, made home mining a thing of the past.
Today, mining has become a lot less accessible. To generate profits, miners not only need to purchase high-performance ASIC mining machines but also find suitable locations for these machines to minimize the disturbance caused by noise and acquire the lowest possible electricity prices.
For individual miners with only a few machines, hosting them in a mining farm is a great option, although farms usually charge hosting fees. If you’ve got hundreds of mining machines and your own mining farm, you’ll have to employ one or even several professionals to regularly maintain the machines, making maintenance costs unavoidable.
Furthermore, miners must also be able to read the market. This skill is crucial because the price of BTC mining machines is closely tied to market expectations of the potential of the BTC price in the near future. For instance, purchasing mining machines with good timing could shorten the payback period.
According to the official website, Bitcoin Miner S19j Pro+, a model released by BITMAIN, is now sold at $990, with a rated hashrate of 90T and a power consumption of 3105W. Putting these figures into ViaBTC’s Profit Calculator with the current network difficulty of 49.55T and the electricity cost of $0.05 per kWh yields the following results:
The daily net revenue of the model stands at $3.36, and assuming the difficulty and BTC price remain constant, it would take approximately 295 days for miners to recover the cost. Unfortunately, for miners who purchased the same model at the price peak last year (around $3,000), the payback period would extend to a lengthy 3 years. This is no financial advice, and investors have to make their own judgments regarding whether it is worth it to join the business now.
Risks of BTC Mining
BTC miners mainly face two kinds of risks: policy risks and market risks.
We all know that Bitcoin’s PoW mechanism consumes massive power. Moreover, fossil fuels like coal still make up a major part of the Bitcoin electricity mix. As such, some countries have adopted policies to restrict or ban BTC mining to reduce carbon emissions and achieve carbon neutrality. Even in countries that embrace crypto mining, the high mining taxes and industry-specific electricity prices have led to a major slump in miner revenue.
In addition to policy-wise uncertainties, market volatility also poses significant risks. In a market with dramatic price swings, if someone joins the mining industry at the peak price with high mining costs, he/she might suffer huge losses if the price declines later on.
For example, listed mining companies, including Core Scientific, Bitfarms, and CleanSpark, paid exorbitant mining costs during the crypto bull, which resulted in declining profits during the crypto bear in 2022 and led to 75%+ drops in their stock prices. Apart from the big players, many overly optimistic miners also suffered heavy losses in 2022.
Therefore, despite the current bullish market sentiment and the considerable transaction fee revenue generated by BRC-20, it is uncertain how long the trend will last. As such, investors should avoid blindly entering the market. It’s always a good call to first examine the potential impact of policy and market risks and carefully evaluate one’s risk appetite and investment objectives before joining the mining business.
