Mining Back In Black

mining back in black

Mining Profitability - Back In Black

Thanks to a steadily declining mining difficulty level, mining profitability at around today’s $3 BTC/USD has returned to nearly the same level as when the BTC/USD was a little above $4 two months ago.

The details that go into how the points plotted in this new chart from BlockChain.info (realtime view) are not known yet but as explained in the site’s footnotes based on the rate of $0.15 per kWh.  The chart’s description reads “miners revenue minus estimated electricity and bandwidth costs”.  

The chart corresponds with the claims by miners that when including the cost of electricity, mining was a money-losing effort for much of October and November.  While these levels aren’t terribly attractive they will help many miners to at least resume earning some profit – something those who took on debt to buy equipment were certainly looking forward to.

At the same time, the level of mining activity has stopped dropping and appears to be on the rise (as shown in photo), ever so slightly once again.  Because many miners simply powered off their rigs during the price collapse, spare capacity is just a flick of the power switch away.  

As a result difficulty will adjust nearly in real-time, versus a several week to multi-month lag which was seen back when miners couldn’t buy hardware fast enough to catch up to the price ascent.

Also, a recent burst of media coverage of Bitcoin appears to have once again brought a wave of first-timers looking to try their hand at mining.  They will be competing against veteran miners who have been buying up some of the used hardware that others had been dumping as well as picking up deals such as NewEgg’s recent special price of $300 for ATI HD 5970s.

At current levels, a little over $20K worth of bitcoins is minted each day (7,200 BTC per day X $3 or so BTC/USD).  Informal surveys have found that a significant percentage of miners are dumping their mining proceeds nearly as soon they are received – to pay for the electricity consumed by mining, at a minimum.  

As a result, the recent rise in demand isn’t finding a corresponding rise in supply from miners taking profits – as many miners simply have already sold nearly everything that they’ve produced and are producing.  Little can be concluded except that the price rise likely isn’t attributed to hoarding by miners but instead appears to currently be simply new investment inflows that bring demand significantly above the 7,200 BTC per-day supply.

If this keeps up, miners might – for the first time in months, have something to celebrate.

Written on 02 Dec 2011.