USA, Europe bitcoin mining profitability decreases with the beginning of the new cycle

Total Bitcoin energy consumption similar before halving

Transaction fees are expected to rise

Breakeven cost doubles

The electricity demand to mine one bitcoin has doubled since the April 19 halving event, but the estimated total daily energy consumption remains steady at around 450 GWh, according to the S&P Global Commodity Insights Bitcoin Energy Consumption Index.

Each bitcoin halving cycle occurs every four years where the available bitcoin to be mined is cut in half.

While bitcoin prices remain stable and have no impact on electricity prices, this has doubled the breakeven cost for bitcoin miners, with the most energy efficient miners to stay on the network in the long run.

“The profitability of mining was cut in half overnight. The general theory is that over time this should be compensated by a rise in the BTC price and/or drop in global hashrate, at least until profitability stabilizes for the remaining hashrate”, said Kjetil Pettersen, the CEO of KyrptoVault.

Bitcoin halving reduces the rate at which new coins are created and lowers the total daily mined supply as a result on a four-year cycle. Total bitcoin mined per day dropped to 450 from 900 overnight, halving the mining rewards for bitcoin miners and doubling the energy consumption per bitcoin mined. Despite the increase in energy consumption per each bitcoin mined, total network energy consumption remained flat until pre-halving. This indicates that the same number of bitcoin miners on the network is still post-halving compared to the previous cycle.

S&P Global Commodity Insights Bitcoin Energy Consumption Index shows the energy consumption per bitcoin mined with the standard graphics card Antminer S19 Pro, which has an average of 110 TeraHashes per second (TH/s), consuming 3.25 Kilowatts.

Alex Stoewer, the COO of DPO says that the energy intensity of the bitcoin network also serves as a security layer that improves each cycle depending on the amount of power directed to run the protocol at the expense of profitability to run the algorithm to execute.

The algorithms are run by computers to solve computer puzzles to contribute and add new blocks on the bitcoin blockchain every 10 minutes. The difficulty level of the puzzle is adjusted based on the total available computing power from computers to maintain an average block generation time of 10 minutes.

Energy cost contributing to the network to generate computing power to receive rewards in the form of bitcoin is still the main determinant of profitability contributing to the network.

Bitcoin miners have the flexibility to participate in the bitcoin mining pools at times when bitcoin price is high enough or energy costs are low, or to stay off the network when energy costs or lower bitcoin price drives lower their mining profitability.

Transaction costs are introduced to compensate for the halving of the mining rewards in each cycle. In addition to financial transaction fees, now ordinals and inscriptions, a method of storing information about Bitcoin, are also introduced to contribute to the fees collected by the miners.

“I believe the original one behind the halving mechanism was that transaction fees should absorb a larger and larger portion of the miners’ total profitability, rather than the block reward, until the latter disappears completely in 2140.” Pettersen said.

Stoewer also emphasized that transaction fees are not being cut in half and will make up a larger portion of future mining revenue.

S&P Global Commodity Insights Renewable Bitcoin Quarq Spread Index presents the bitcoin mining profitability on a grid-based delivered electricity accounting for renewable certificates for both the US and Europe, across 43 regions.

Day-ahead locomotive prices fell from their winter peaks in both the US and Europe as milder temperatures coupled with strong renewable generation supported bitcoin mining profitability ahead of the April 19 halving event.

Mining profitability figures within ERCOT West Hub and Georgia ranged between $100-150/MWh, down to below $50/MWh, S&P Global data showed.

A surge in bitcoin mining profitability was observed in SPP North Hub as the region registered negative average off-peak power prices.

SPP North Hub off-peak day-ahead power price sat at negative $3.40/MWh for April 23, and negative $2.55/MWh for ERTOC West Hub.

Europe

Strong renewable generation and subdued demand led to a discount for Spanish power prices vis-a-vis its neighboring European markets.

Ahead of summer demand, power prices across most European markets have already registered a record number of negative hours for March and April.

Hourly power prices in France, Germany and the Netherlands fell to as low as negative Eur55.01/MWh on 13 April.

Forward power prices indicate an increase in power demand through the summer. Previously, bitcoin mining profitability was out of the money through both winter and summer peak demand periods due to a spike in power prices, S&P Global data shows.

Day-ahead peak power price rose in Mid-C to $921.92/MWh January 13, and at a multi-year high in ERCOT West Hub of $1,598.14/MWh August 25, 2023.

Platts-Pexapark Power Purchasing Agreement daily indices (3Pi) for Spanish solar power were at Eur32.36/MWh on April 24.