Is cryptocurrency mining still profitable?
In 2021, there was a global frenzy around cryptocurrency mining, with many users rushing to buy graphics cards and mining machines to become personal miners at home, hoping to earn some passive income. During the peak of mining, the price of graphics cards skyrocketed to three times the suggested retail price, making it nearly impossible for computer gamers to purchase them.
However, as Ethereum transitions from Proof of Work (PoW) to Proof of Stake (PoS) in 2022, making Ethereum mining no longer possible, and as Bitcoin adjusts its mining difficulty over time, the once popular mining trend has disappeared overnight.
Is mining still a lucrative business today?
What is cryptocurrency mining?
Cryptocurrency mining, such as Bitcoin (BTC) mining, involves using computer calculations to determine who is responsible for verifying and recording transactions, and in return, miners receive cryptocurrency as a reward. It is similar to a computational competition, where the first device to solve the problem gains the right to record the block and receive block rewards.
In recent years, mining difficulty has increased, making it no longer as easy as before to “earn cryptocurrency through electricity bills” using just a computer’s CPU. However, mining still offers the opportunity to earn some income. The price of Bitcoin continues to rise, and more people are adopting Bitcoin, providing miners with a space to survive.
But it may not be as simple as “mining and selling coins.”
How to make money from mining?
Chen Xianglong, the founder of Taiwan’s cryptocurrency mining company Man Yuan Technology, pointed out that mining strategies usually align with the market cycle. “The strategy is to clear out the mining farm at the peak (about a year before the price drops), sell all the equipment and facilities at a high price, and then re-enter the market after the price drops the following year.”
In other words, by entering the market at a low price and selling the mined cryptocurrency at a high price, as well as strategically managing mining equipment, miners or investors still have the opportunity to obtain decent returns.
Many foreign mining farms collaborate with local businesses or engage in side businesses to utilize the waste heat generated from mining as an energy source or even earn additional income by providing actual products, thereby balancing the asset gap caused by Bitcoin price volatility.
For example, the Bitcoin mining farm Bitcoin Bloem in the Netherlands collaborates with local farmers to set up mining machines in greenhouses and utilize geothermal and gas co-generation equipment in the greenhouse to save electricity costs. Farmers can reduce the use of expensive natural gas and keep the greenhouse warm using the high-temperature waste heat generated from mining.
Norway’s largest Bitcoin mining farm also utilizes the waste heat from mining to quickly dry moist wood and provides drying services for local loggers.
What are the challenges of operating a cryptocurrency mining farm?
Chen Xianglong, who has been studying mining since 2010 and has experienced several cycles of market ups and downs, pointed out that the biggest challenge in operating a mining farm today is the issue of electricity.
Firstly, the increasing electricity prices each year pose a significant cost problem for miners. “The costs of mining mainly consist of electricity bills, equipment costs, and facility rentals,” said Chen Xianglong. Maintenance costs fluctuate depending on the individual miner’s technical expertise, and most of the rental facilities are located in rural areas, allowing costs to be kept low. However, electricity bills cannot be significantly reduced and account for about 90% or even more of the costs.
Secondly, there are challenges in applying for electricity supply. Taiwan has limited power resources, and new mining farms need to apply for electricity from Taiwan Power Company. However, there are restrictions and thresholds for new applications, making it a major challenge for newly established mining farms.
Under Man Yuan Technology, there are mining farms of various sizes, ranging from a dozen to thousands of mining machines. However, due to the rising costs of electricity and facility rentals, the number of domestic mining machines has gradually decreased, and plans for overseas mining farms have been initiated.
Additionally, the upcoming Bitcoin halving in April also brings significant impact and challenges to cryptocurrency miners.
Firstly, with the increasing mining difficulty, miners need more powerful hardware to remain competitive. This means they need to constantly invest in updating their hardware, which can be a burden for smaller 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, it usually takes about six months or more for the real bull market to materialize. As a result, the income for mining farms is reduced to only 50%, and customers are hesitant to invest due to the lack of significant price increases, affecting mining farm revenue.
In addition, the volatility of Bitcoin prices also affects miners. Although the Bitcoin halving event may lead to price increases, market uncertainties or unexpected events can still cause price crashes, thereby affecting miners’ earnings.
How do Bitcoin miners view future developments?
With the upgrade of Ethereum to 2.0, graphics card miners have disappeared overnight, and Bitcoin mining has become unfeasible with the increasing mining difficulty, requiring the use of more expensive specialized mining machines, marking the end of the global mining frenzy.
Chen Xianglong stated that the proportion of large-scale mining farms operating in Taiwan is currently not high. However, as the price of Bitcoin gradually rises, the demand for mining machines has been increasing, and it is expected to spark another “mining machine frenzy” next year.
Chen Xianglong believes that we are currently in the beginning of a bull market, and he expects mining machine prices to start rising in the second half of this year. If a major bull market does occur next year, their strategy is to start investing and preparing for mining from last year, expecting to mine until the second half of 2025 with minimal coin selling during this period.
However, Bitcoin has already risen by 63% from the beginning of the year, reaching a new all-time high. As a result, many foreign Bitcoin miners have changed their strategy of holding coins and have chosen to sell a large amount of Bitcoin to upgrade their mining operations and lock in profits.
If someone is interested in getting started with mining and wants to take advantage of the current market, 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 mining choices, and the allocation of different cryptocurrencies can be done with the assistance of a team, based on risk tolerance.
“The more Bitcoin rises, the more advantageous 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 may seem more cost-effective.”
Chen Xianglong concluded that the market is still only at the beginning of a bull market, and if a major bull market truly emerges next year, the potential increase in Bitcoin mining machines and prices is worth looking forward to.
Proofread by: Gao Jingyuan