These three are interconnected in a sense that for one ecosystem to function perfectly then all cogs must be intact. Blockchain underpins the Bitcoin protocol but Bitcoin as a platform is nothing without a community of distributed miners.
Bitcoin promises to drive financial inclusion, but it is the complete decentralization of miners that delivers this gift. And this is where enabling platforms like mining providers fill the gap. But admittedly, Bitcoin mining–considering what’s at stake, is an expensive affair.
There are bills to be paid for expensive yet on-demand gear that must be upgraded from time to time. This is on top of operation expenses which is mostly about settling electricity costs.
Bitcoin Mining Can be Expensive
Mining gear consumes power and as they do, they expend heat and let’s not forget the deafening noise. Combined, the cost of operation, cooling, and noise attenuation mean a savvy miner must do everything to reduce the cost of production and remain relevant for profitability. At the heart of this is selecting the best location of operation where a balance must be struck.
The Bitmain Antminer S19 Pro, for instance, consumes 3,250W in exchange for 110 TH/s yielding $$40.68 per week in profits if the cost of electricity is $0.10 KWH according to What to Mine.
This is the naked cost without factoring in the cost of hardware acquisition, cooling, noise control, and rent. However, if electricity cost drops to say $0.03 per KWH at BTC spot rates of $7,700, profitability will rise 30 percent to $78.95.
Other factors like the next Bitcoin halving will come to play but the cost of electricity matters regardless of the hash rate.
While the cost of power in China will likely drop in this rainy season, in other areas and especially where it is not feasible to tap renewables or hydro, dropping oil prices is a relief and an opportunity for miners.
Falling Oil Prices
On April 20, the West Texas Intermediate (WTI) crude oil futures for May delivery fell 305 percent to -$36.73 a barrel, sending shock waves in the commodities and Oil markets. Although prices have since snapped back to above $10, it showed how fragile the markets were.
Futures traders were dumping May oil Futures deliveries as storage facilities across the United States were full. As storage comes with a cost, traders quickly dumped to prevent barrels of oil being physically delivered.
Because of the supply gut, oil prices will drop and this will be a boom for Bitcoin miners. For ordinary traders who can leverage CoinFly’s platform where its OS is tuned to reduce power consumption and increase hash rate and therefore profits, there is no need to pull hair.
Combined with the provision of honest mining pools and the option of shifting to the Autopilot mode where the miner flawlessly mines the most profitable currency in real-time while simultaneously taking control of all mining processes like hardware adjustment, miners have an edge.
However, for Bitcoin mining businesses who depend on oil prices for profitability, the expected drop in oil spot rates is exciting.
Why Falling Oil Prices Will Boost Bitcoin Miners’ Profitability
Falling oil prices mean the cost of firing expensive diesel generators will remain low. With low operating costs coupled with rising Bitcoin prices, profitability remains high. Depending on how governments across the world put measures in place to curb the spread of the highly contagious zoonotic virus, the demand for oil will remain suppressed further heaping pressure on price.
This, in the short to medium term, will play in favor of miners who have to contend with the volatile nature of Bitcoin’s prices, hash rate of their mining gear, and electricity costs which vary from one jurisdiction to another.
But with halving scheduled in the next 13 days, low oil prices will play an important role in shoring the general health of the Bitcoin network. The strength and weakness of Bitcoin is measured in hash rate contributed by a maze of miners distributed across the world. After halving, Bitcoin block rewards will fall to 6.25 BTC.
Even as rewards fall, operating costs will likely remain the same because it is unlikely for energy companies to reduce the cost of electricity for miners with gear running on their backyards. Compensating for will be a hopeful re-pricing of Bitcoin.
Depending on how halving will be received, it is highly likely that weak miners will be shaken out if prices fall creating room for industrialization and centralization as competition for the 6.25 BTC becomes cut throat.
If oil prices remain suppressed in the medium term because of coronavirus disruption, miners drawing power from diesel generators will remain in business as oil prices would have nearly halved as Bitcoin prices rise compensating for the halving of Bitcoin miner rewards.