Bitcoin mining profits begin to decline after a year of prosperity

The enthusiasm for cryptocurrency mining in 021 may be coming to an end. Arcane Research said in its monthly report on Wednesday that, after months of very profitable profits, the profit margin of Bitcoin mining has been declining since November.

Data from the mining pool BTC.com shows that in the month after China suppressed miners in May this year, the Bitcoin hash rate (a measure of network computing power) was almost halved. Arcane's data shows that with the reduction in competition from Chinese miners and the soaring price of Bitcoin, the remaining miners have seen steady growth in yields before November. In an interview with CoinDesk, Amanda Fabiano, head of mining at Galaxy Digital, compared this period to a "gold rush." However, Jaran Mellerud, a researcher at Arcane, Norway, told CoinDesk that between November 9th and December 22nd, the cash flow of Bitcoin mining using Bitmain's Antminer S19 decreased by 36%, while S9 dropped by 50%. Mellerud attributed this decline to "a 28% drop in Bitcoin prices over the same period, plus a 12% increase in [mining] difficulty".

According to Arcane's data, the profit margin of mining with S19 has fallen to levels not seen until July. Data from the Bitcoin browser Blockchain.com shows that since the end of July, the difficulty of mining has been increasing because "displaced" Chinese miners have found new places for their businesses and new investments have also started to go online, especially in North America. The difficulty of mining a Bitcoin block is automatically adjusted according to the hash rate to maintain the stability of the time required to mine a block. The largest publicly traded miner "There are a huge number of ASICs [application-specific integrated circuits] scheduled to be delivered in 2022," Mellerud said.

The miners told CoinDesk that considering these deliveries and the fact that Chinese miners are still backfilling, the hash rate may increase until next year. He said that this means that the "super profit" we see in 2021 "will continue to decline in the first few months of 2022."

In the past few weeks, some large mining companies around the world agreed with Mellerud's prediction in an interview with CoinDesk. Most people expect that with the deployment of more machines, the hash rate will substantially increase or even double in the next year. As a result, the difficulty of mining will increase and the profit margin will shrink. But profitability ultimately depends on the price of Bitcoin, Mellerud said. If "its increase can outperform all new hash rates in 2022, we may also see super profits in 2022 similar to those in 2021."