Majority of Bitcoin Miners Profitable at Current Prices According to CoinShares Research

By MinerUpdate | Miner Insights | 16 Dec 2019


This insight piece was originally published in MinerUpdate.

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CoinShares publish their latest research report analysing the state of the Bitcoin mining industry. In addition to a higher share of hash rate in China, CoinShares estimate the majority of miners are profitable at current prices and 73% of operations are powered by renewables.

Quick take;

  • CoinShares estimate that China’s share of hash rate has risen to 65% with 54% of global hash rate believed to be in Sichuan province
  • In a comprehensive analysis of mining cost of production, CoinShares place the industry-wide average breakeven figure at $6,100
  • By cross-referencing global distribution of hash rate with renewables penetration figures, CoinShares estimate 73% of bitcoin mining is powered by renewable energy sources

CoinShares has highlighted significant developments in the bitcoin mining industry in their latest research report. In their research, CoinShares has provided their estimates on the geographical distribution of Bitcoin mining, the current cost of production per bitcoin mined, and what percentage of operations are powered by renewables.

One element of the CoinShares report which garnered attention was the geographical distribution of hash rate. CoinShares estimated that China holds as much as 65% of the global hash rate, the highest figure observed by CoinShares since their research team began monitoring the network in late 2017.

“We currently estimates that 65% of global mining happens in China, and that Sichuan alone produces 54% of global hash rate”

Those familiar with the industry will be unsurprised by the high estimates for China’s share of Bitcoin mining. The Sichuan province in the Southwest of China has proven to be an extremely attractive region given that bitcoin miners can secure low-cost energy deals from hydropower producers especially during rainy season.

“Miners are still majorly confined to regions dominated by cheap hydropower, such as Scandinavia, The Caucasus, The Pacific North West, Eastern Canada, and Southwestern China. We believe this to be a direct consequence of the extremely low electricity prices available in these regions, especially where the hydropower is relatively under-utilized.”

One interesting observation in the CoinShares report noted the increased movement of miners to coal-dominated regions such as Kazakhstan. This observation has been also voiced by other industry professionals MinerUpdate has been in contact with and at least one analyst is foreseeing the Bitcoin mining industry being predominantly powered by fossil fuels in the future.

BITCOIN MINERS REMAIN PROFITABLE AT CURRENT PRICES

Bitcoin price

Bitcoin price has undergone a significant downward movement since the last CoinShares mining report was published in June. After reaching highs of near $14,000 in Q2, bitcoin price recently declined to prices around $6,500. At the time of writing, bitcoin price is trading at roughly $7,073.

While such declines squeeze miner margins, a comprehensive cost of production analysis by CoinShares suggests that most bitcoin miners are still profitable at these prices. CoinShares publish a variety of cost of production estimates based on varying CAPEX costs, OPEX costs, and depreciation schedules.

Their headline estimate for the average breakeven cost of the overall bitcoin mining industry is $6,100 which assumes an average electricity price for the industry of $0.04 per kWh and a hardware depreciation schedule of 30 months. The hardware depreciation schedule in their previous report was 18 months but CoinShares increased this to 30 months given the longer expected hardware lifespans of the latest generation of ASICs.

“At current bitcoin prices, we believe the overall bitcoin mining industry is profitable on average, with both previous-generation hardware… at relatively cheap electricity costs (<$0.03/kWh)… and next-generation hardware, even at relatively expensive electricity costs (>$0.05/kWh).”

As mentioned above, it is becoming evident from discussions among industry professionals that Kazakhstan is becoming an increasingly popular location for Bitcoin mining. Much of the older-generation hardware is believed to have transitioned to Kazakhstan and Iran where electricity rates can be secured at a low enough rate for these old-generation models to be profitable even beyond the halving.

“Major trends this time around has been significant flow of S9-generation hardware to non-renewable-dominated regions such as Iran and Kazakhstan”

Texas is another upcoming area which has been noted by industry professionals as holding high potential due to the possibility of securing low-cost energy deals. CoinShares has marked Texas as a prospective region for Bitcoin mining on their map of mining regions.

CoinShares Research map of Bitcoin mining regions

BITCOIN MINING STATE OF RENEWABLES

The estimate of how much Bitcoin mining is being powered by renewable energy sources is typically the figure which appears in headlines where the CoinShares mining report is concerned. While their previous report estimated that Bitcoin mining was 74% powered by renewables, this latest report is marginally lower at 73%.

In their report, CoinShares rightfully highlights the limitations of their renewables estimate accurately describing the Bitcoin mining industry as one which is “highly private and secretive”. However, as far as industry estimates go, CoinShares employ the most robust methodology.

Nonetheless, the limitations of their model must be taken into account and those who widely cite the figure should especially understand how it is derived. At a high-level, CoinShares estimates the global distribution of hash rate based on a database they have built and cross-references this database with the percentage of energy powered by renewables in different regions. The degree of energy powered by renewables in the various regions is based on research from a number of different sources.

In terms of electricity draw, CoinShares estimates that Bitcoin mining currently consumes 6.7 GW. This equates to an annualized consumption of 61 TWh, comparable to what Switzerland would consume on an annual basis. The Cambridge Bitcoin Electricity Consumption Index (CBECI) currently estimates an electricity draw of 7.6 GW.  

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