Is Cryptocurrency Mining Still Profitable?
In 2021, the world experienced a “mining frenzy” where mining seemed like an easy way to make money. This attracted many users to buy graphics cards and mining machines to become personal miners at home in order to increase their passive income. During the peak of mining, the price of graphics cards skyrocketed to three times the suggested retail price, making it difficult for computer players to purchase them.
However, with Ethereum transitioning from Proof of Work (PoW) to Proof of Stake (PoS) in 2022, rendering Ether mining obsolete, and Bitcoin adjusting mining difficulty over time, the once popular mining trend disappeared overnight.
Is mining still a good business today?
What is “mining”?
Cryptocurrency mining, using Bitcoin (BTC) as an example, involves using computer calculations to determine who is responsible for verifying and recording transactions, and in return, miners can receive Bitcoin as a reward. Conceptually, it’s like a competition where computers compete in calculations, and the first device to solve it gains the right to record the block and receive the block reward.
In recent years, mining difficulty has increased, and it is no longer as easy as before to “exchange electricity fees for cryptocurrency” using just a computer’s CPU. However, there is still an opportunity to earn some income through mining. After all, the price of Bitcoin continues to rise, and more and more people are using it, allowing miners to still have room for survival.
But it may not be as simple as just “mining and selling coins.”
How to make money from mining?
Chen Xianglong, the founder of Taiwanese cryptocurrency mining company Man Yuan Technology, pointed out that mining operations strategies are often based on the market cycle. “The strategy is to clear the mining farm at the high point (about a year before the coin price drops sharply), sell all the machines and facilities at a high price, and then re-enter after the big drop the following year.”
In simple terms, by buying low and selling high the mined cryptocurrencies and utilizing mining facility strategies, miners or investors still have the opportunity to generate decent profits.
Many foreign mining farms also cooperate with local businesses or engage in side businesses. They use the waste heat generated by mining as an energy source or even obtain actual products to offset the asset gap caused by Bitcoin price fluctuations.
For example, Bitcoin mining farm Bitcoin Bloem collaborates with local farmers in the Netherlands to set up mining machines in greenhouses and utilize the geothermal and combined heat and power equipment installed in the greenhouses to save electricity costs. Farmers can reduce the use of expensive natural gas and keep the greenhouses warm using the high temperature waste heat generated by mining.
Norway’s largest Bitcoin mining farm also uses the waste heat from mining to quickly dry damp wood and provide drying services for local loggers.
What are the challenges of running a cryptocurrency mining farm?
Chen Xianglong, who has been researching mining since 2010 and has experienced several cycles of bull and bear markets, said that in the past, mining could be easily started with just a laptop. However, as time passed, the biggest challenge in running a mining farm now is the issue of electricity.
Firstly, the electricity cost increases every year, which is a significant cost issue for miners. “The cost of mining mainly consists of electricity fees, machine costs, and rent,” said Chen Xianglong. Maintenance costs are variable and depend on the individual mining skills, while rent is mostly set in rural areas. Therefore, costs can be kept low, “but electricity fees cannot be reduced. Electricity fees account for 90% or even higher of the costs.”
Secondly, there is an issue with electricity applications. Taiwan has limited power resources, and new mining facilities need to apply for electricity from the Taiwan Power Company. However, new applications often face restrictions and thresholds, posing a big challenge for newly established mining farms.
Man Yuan Technology operates mining farms of various sizes, from a dozen machines to over a thousand machines. However, due to the increase in electricity and rent costs, the number of domestic mining machines has been decreasing, and the company has started planning overseas mining farms.
In addition, the upcoming Bitcoin halving in April has also had a significant impact on cryptocurrency miners in the short term.
Firstly, with the increase in mining difficulty, miners need more powerful hardware to remain competitive. This means they need to continuously invest in upgrading their hardware, which could be a huge burden for some small mining farms.
Secondly, the halving of mining rewards directly affects miners’ income. Before the Bitcoin halving, miners received a certain amount of Bitcoin rewards for each mined block. However, after the halving event, it usually takes about half a year for the real bull market to emerge. As a result, the income for mining farms is reduced to only 50% of the original, and potential customers are hesitant to invest due to the lack of a significant increase in coin prices, thereby affecting the revenue of mining farms.
Additionally, the volatility of Bitcoin prices also affects miners. Although the Bitcoin halving event may bring about a certain price increase, market uncertainty or unexpected events can still cause prices to collapse and affect miners’ earnings.
How do Bitcoin miners view future development?
With the transition of Ethereum to 2.0, graphics card miners disappeared overnight, and Bitcoin mining became impossible with regular computers due to increased mining difficulty. Specialized mining machines with higher costs must be used, bringing an end to the global mining frenzy.
Chen Xianglong stated that the proportion of large-scale mining farms in operation is not high in Taiwan at the moment. However, as the price of Bitcoin gradually rises, there has been an increasing demand for mining machine investments, and it is expected that there will be another “mining frenzy” next year.
Chen Xianglong believes that we are currently at the beginning of a bull market, and he expects mining machine prices to start rising in the second half of this year. If a real bull market arrives next year, “our strategy is to start positioning and entering the market from last year, expecting to mine from 2023 to the second half of 2025, and during this period, we will hardly consider selling coins.”
However, Bitcoin has already risen by 63% from the beginning of the year, even reaching a new all-time high. Therefore, many foreign Bitcoin miners have changed their coin hoarding strategies and cashed out a large amount of Bitcoin to upgrade their mining operations and realize profits in advance.
If you believe in the market’s development and want to get into mining early, Chen Xianglong suggests that mining machines range in price from $1,000 to $20,000 depending on their computing power. In addition to Bitcoin, Dogecoin and Litecoin are also popular choices for mining, and the team can assist in allocating different currencies based on risk tolerance.
“The more Bitcoin rises, the more obvious the advantage of mining becomes,” Chen Xianglong added. “Currently, the cost of buying coins is about $70,000, while the cost of mining may be around $30,000. If the cost of buying coins increases to $100,000, the cost of mining may be between $50,000 and $60,000, or even lower. For investors, mining feels more cost-effective.”
Chen Xianglong concluded that the market is still only at the beginning of a bull market, and if a real bull market appears next year, the rise in Bitcoin mining machine prices and coin prices is something to look forward to.