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Profitability of BTC Mining in a Bear Market

Bitcoin's economic design and price appreciation over the past decade has made it one of the world's most prized investment assets. With a near $600 billion market capitalization, the estimated daily trading volume currently sits around $25 billion while BTC makes up 29% of Coinbase's $2 billion daily volume. Global demand for bitcoin is met by the cryptocurrency's liquid supply, with miners serving as the infrastructure for new coins to enter circulation. However, to become part of the Bitcoin mining ecosystem has many challenges which we have comprehensively covered in a previous release. As a result, the few entities that have been able to establish mining operations in a sophisticated manner have enjoyed a huge discount compared to buying Bitcoin on the open market.

This piece dives deeper into the subject of buying vs mining Bitcoin, including during periods of market downturn. While buying Bitcoin on the open market is still a profitable approach for most investors, mining represents the most efficient way to increase your bitcoin stash and achieve significantly higher returns. Green Mining DAO is leveling the playing field by allowing retail investors to tap into the lucrative Bitcoin mining industry without facing the typical barriers that normally prevent them from doing so.

To buy or mine in a downtrend?

After hitting an all-time high around $68,000 in 2021, Bitcoin looks set to continue its historical four-year cycle. Increased macro uncertainties such as central bank rate hikes and warring economies have forced BTC to drop more than 50% from its previous highs. Despite this downtrend, Bitcoin miners are still mining BTC at a significant discount to market prices.

For instance, with an electricity price of $0.03 per kWh, the latest-generation Antminer 19 with a hashrate of 95 TH/s and 3250 Watts power consumption mines BTC for a total production cost of $6200. This figure is roughly 20% of Bitcoin’s current market price, standing at roughly $30,000. Hence, it is not surprising that major mining companies are continuing to deploy new mining rigs and acquiring power sources amid bear market talks.

Cost of Mining 1 BTC with the specs of the latest-gen Antminer S19 (Source: Braiins.com)

Mining BTC for a fraction of its current market value has unprecedented benefits. Most importantly, this asymmetric play provides a greater cushion against the worst outcomes, including if Bitcoin ever falls below its previous cycle high ($20,000). It also allows investors to confidently ride any potential upside and tap into immense profit.

However, the intricacies involved in mining bitcoin are complex when compared to the conventional method of buying it on the open market. There are huge capital costs involved in setting up power infrastructure, hiring trained personnel, and maintaining day-to-day operations. These costs explain why the Bitcoin mining industry is largely dominated by multi-billion mining companies that tap into lucrative profits and in turn sell BTC at a significantly higher spot price to retail investors.

Global chip shortage boosts Bitcoin mining profitability

Since the migration to GPU and ASICs, Bitcoin mining has been fairly profitable for investors who can shoulder the costs of firing up mining machines. Mining profitability has been further amplified by market dynamics set in motion by the global pandemic.

Historically, Bitcoin mining profitability has been closely tied to the emergence of new and powerful hardware. As the latest-generation hardware with superior hashpower comes to market, Bitcoin's mining difficulty increases, lowering profitability for miners running old-gen machines. Since late 2020, however, there has been a global chip shortage resulting in a huge bottleneck in ASIC production and delivery. The shortage is widely attributed to dominant-chip manufacturing factories shutting down amid the pandemic and social distancing measures leading to delays in shipping of machines. Amid the shortage, there has been unprecedented demand for semiconductors across several industries including cloud computing, consumer electronics, automotive, and even healthcare. Many industry experts, including Deloitte, estimate that the global chip shortage will begin to resolve in 2023 and could take at least a few more years to completely wane.

The current state of the global chip market boosts long-term profitability for Bitcoin miners that can secure the limited supply of ASICs currently available. Entities that heavily invest in mining hardware and infrastructure are in prime position to benefit from mining dynamics. Additionally, the prospect of a continued downturn and a four-year price cycle means access to cheap BTC with fewer concerns about new and powerful hardware coming online to drive up network difficulty. Mining operators can retain significant upside while accumulating more BTC than they originally would, buying spot BTC in a downtrend.

Unlocking bitcoin mining profits for retail investors

Bitcoin mining has historically been an extremely profitable venture. Current market dynamics, including a global chip shortage and BTC price trends, make mining increasingly lucrative over buying spot BTC. Green Mining DAO is shaping up to disrupt the Bitcoin mining industry by becoming the first decentralized autonomous organization to mine BTC for its members. A close partnership with industry-leading ASIC hardware manufacturers grants the DAO access to the latest-generation mining machines required to profit from favorable market conditions in the coming years.