Is bitcoin mining still profitable?

As of October 2024, approximately 1.45 million Bitcoins are left to be mined. The total supply of Bitcoin is capped at 21 million, and around 19.55 million have already been mined.

With Bitcoin prices hitting an all-time high, it begs the question: is Bitcoin mining still profitable?

Firms around the world continue to keep their miners running. This suggests that there are still profits on the table. If Bitcoin mining weren’t profitable, firms would naturally shut down and go out of business.

Several key factors impact the profitability of Bitcoin mining: equipment costs, energy, and government regulations.

ASIC Miners and Market Cycles

ASIC miners vary in price and follow the boom-and-bust cycle seen in Bitcoin’s prices. When the price of Bitcoin hits all-time highs, there is naturally more demand for these miners to cash in on the opportunity. On the flip side, when Bitcoin prices crash, ASIC miners become a less attractive investment vehicle. The colloquial saying “buy low, sell high” could also apply to how an investor should time the purchase of mining equipment.

Peter Saddington’s StaaS Fund LP LLC Investment Record?

Peter Saddington’s StaaS Fund illustrates this principle in action. I met Peter during the Bitcoin Energy Summit in Miami this past year. During the conference, I heard the story of a mining company that had to use Bobcats to haul mining equipment out of its warehouse after going bankrupt. Having no patience to carefully remove equipment shows how little value the mining equipment held. Peter was clear that when you invest in mining equipment is crucial for the longevity of any mining operation.

In the graph, you can see that Peter invested in mining equipment during down cycles, allowing him to take advantage of cheap prices. Thus, his capital costs were lower, and if the price of Bitcoin crashed, his buying price didn’t turn negative, and his returns could still justify the price he paid.

Supplier Influence

Timing is key to ensuring profitable returns in Bitcoin mining, but the right supplier can also impact the success of an operation. Suppliers like ASICPlug.com have distinguished themselves among other suppliers as they pass down wholesale prices to consumers. The supply chain of ASIC miners can include many middlemen, and prices can change overnight. ASICPlug provides a wide range of models and ensures competitive pricing regardless of market cycles. Their goal is to give consumers the same prices that previously only wholesalers could access.

Energy Costs: The Critical Variable

Mining equipment represents the main capital costs, and now I’d like to shift to talk about possibly the most important factor in a mining operation: energy costs. Miners have searched far and wide for cheap energy. Mining operations have popped up in some peculiar regions due to their competitive prices. I had the chance of visiting Paraguay this year, which has seen a surge in mining investment due to the hydroelectric plants in Itaipu—home to one of the largest dams in the world. This dam has led to some of the lowest energy prices in the region, attracting Bitcoin miners from all over the world.

As electricity is a variable cost for miners, keeping it consistently low is key. Energy prices have varied internationally and across U.S. states, so we see mining operations cluster in certain jurisdictions.

A few months ago, I had the opportunity to visit Paraguay and learn more about the mining boom that has been taking place in Itaipu. This city is home to one of the largest hydroelectric dams in the world. The Itaipu dam has an installed capacity of 14 GW and ranks second globally in terms of generation capacity, following China’s Three Gorges Dam. This dam is responsible for powering Paraguay’s Bitcoin mining operations. Itaipu has attracted foreign investors from across the world in search of low electricity prices for Bitcoin mining. The Itaipu Dam's Bitcoin mining operations include Marathon Digital’s 27 MW facility. While representing a small fraction of the global hash rate, it is interesting to note how investors have set up in more remote locations in pursuit of lowering costs.

While Paraguay’s energy prices have been attractive, government interference has been putting mining operations at risk. The Paraguayan government has been raising energy prices for Bitcoin miners, defeating the purpose of why investors chose to set up operations in Itaipu. Some predictions state that up to 70% of mining operations may close due to the proposed energy price hikes. This shows us how important energy prices are for mining operations, and cheap energy is essential to keep operations running.

The United States and Texas: A Mining Powerhouse?

The United States has maintained a competitive mining environment in Texas, albeit the past regulatory environment hasn’t been the friendliest for crypto companies. Texas, a powerhouse for traditional fossil fuels, has adapted to the modern-day “oil rush” that Bitcoin mining presents. As a significant oil producer, cheap energy and friendly policies have been used to incentivize crypto mining in Texas.

Texas boasts some of the world’s largest energy reserves and has naturally attracted Bitcoin miners with its competitive energy prices. Texas has become the largest contributor to the U.S. hashing power, a measure of Bitcoin mining contribution, representing almost 30% of the U.S. mining output. The U.S. is one of the world’s largest Bitcoin miners, largely made up of Texas operators. Its cheap energy has attracted many mining operations, but Texas’ policies have helped create an exciting environment.

Republican Senator Ted Cruz said in October 2021 that Bitcoin mining could help “strengthen our energy infrastructure.” During his reelection campaign, Governor Greg Abbott made Bitcoin miners a key part of his political platform, gathering miners at the governor’s mansion to promote his friendly stance and find solutions to fit Bitcoin miners within the Texas grid. Governor Abbott, however, isn’t the only pro-Bitcoin politician in Texas. Governor Abbott’s challenger also promoted Bitcoin mining, claiming to have a friendlier stance, and Ted Cruz reiterated that Bitcoin mining could help “strengthen our energy infrastructure.” Politicians in Texas are capitalizing on the state’s energy resources and see Bitcoin miners as part of their future.

Conclusion: Bitcoin mining remains competitive, depending on strategy

Bitcoin mining is an ever-changing industry, shaped by a mix of energy costs, equipment prices, and the policies in place where miners operate. With just 1.45 million Bitcoins left to be mined, the question of whether mining is still profitable has become a hot topic. The reality? It depends on timing and strategy.

Paraguay and Texas are prime examples of how local energy policies impact mining. Paraguay attracted miners with its cheap hydroelectric power from the Itaipu Dam, but government interference with energy price hikes has put many operations at risk. On the other hand, Texas has taken a different route, creating an ideal environment for mining. Its cheap energy and political support have made it a major player in global Bitcoin mining, contributing nearly 30% of the U.S. hash rate. Texas politicians, from Governor Greg Abbott to Senator Ted Cruz, see mining as an opportunity to strengthen the state’s energy infrastructure and boost its economy. This friendlier stance has continued to spread across US politicians, with almost all states now having pro-crypto candidates. These changes have created an opportunity for Bitcoin mining to proper in the United States.?

Success in mining boils down to timing and location. Strategic equipment purchases during downturns and operations in places like Texas with cheap, reliable energy make all the difference. As the mining industry evolves, it’s clear that adaptability and foresight are critical for anyone looking to stay ahead in the game.