A month back, when the price of bitcoin was around $10,000, the cost of mining one bitcoin was $6,851 with the network hash rate at its peak at 113 Th/s. Since then, the price of BTC has fallen 40% to the current $6,000 level while the cost of mining one Bitcoin has risen to $7,300 for existing mining devices, according to crypto analysis company TradeBlock.
This cost is pre halving and after the halving in May 2020, this breakeven would rise to between $12,000-$15,000, which means if BTC price doesn’t move up by then, miners would be in huge loss.
Every four years, the network undergoes a reduction in new supply. Already, we have had two such halvings, now the third one would occur at block height 630,000, reducing the reward halving from 12.5 to 6.25 bitcoin per block.
During the November 2012 halving, leading up to the event, the network hash rate reached a high of 27 Th/s. Closely related to miners’ profit margins, an increase in hash rate means the number of resources committed to secure the network has risen. As resources dedicated to mining rise over time, so goes the efficiency gains and/or mining costs.
To maintain healthy profit margins for miners, a rising hash rate needs to correspond with a rising BTC price.
Three months before 2012 halving the breakeven cost to mine one bitcoin was estimated at $4.45 while the bitcoin price was hovering around $9.50. Following the halving, the hash rate reached a near term peak, block rewards cut down in half, that had the gross cost to mine one bitcoin after the halving at $12.68 while the price of Bitcoin rose up to $13.50 allowing miners to operate at profitable levels.
And although the hash rate declined after the halving, it was a modest dip that didn’t sustain.
When it comes to the last halving, three months prior to the events, the network hash rate reached a new high of 1,250,000 Th/s. The estimated cost to mine one bitcoin before 2016 halving was $217 while the exchange price of bitcoin was $400.
After the halving, the network hash rate reached a new high while block reward decreased from 50 BTC to 12.5 per block. Around that time, Bitmain also launched a new and more efficient mining device Antminer s9.
Taking everything into account, TradeBlock estimated the breakeven cost rising to $453 after the halving while the price was around $600, allowing miners to maintain healthy profit margins, yet again.
The 2020 Halving
Now we are preparing for the third reward in mid-May. The largest mining equipment manufacturer Bitmain began shipping its latest highly efficient Antminer s17 this year. The new model is expected to cost $600 more than the existing model and consuming 480w more power but adding 27 Th/s more hash power.
Based on all this, with the hash rate now at about 110 Th/s, the gross cost of mining one bitcoin is $7,300.
Assuming that hash rate will increase over the next three months at the same rate it did over the past three months and that commercial operators will transition over their fleet to newer models, for 30% of their rigs, this puts the cost after halving at $15,100 or $12,600 if the hash rate stays flat.
Before the recent crash in the price of bitcoin, miners were operating at healthy profit margins but are now in a loss.
In the past, this didn’t happen but this year due to the COVID-19 crisis, the market has taken a hit. Prior halvings suggest that the price would rise after the halving but because of the novel coronavirus, things aren’t the same but during the previous halving the network was less mature too.