US, Europe bitcoin mining profitability declines with the start of the new cycle

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

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

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

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

Bitcoin halving reduces the rate at which new coins are created and lowering the total daily mined supply as a result on a four-year cycle. Total bitcoin mined per day have dropped overnight to 450 from 900, cutting in half bitcoin miners mining rewards and doubling the energy consumption required per bitcoin mined. Despite the rise in the energy consumption per each bitcoin mined, the total network energy consumption remained fixed to pre-halving. This suggests that the same number of bitcoin miners are on the network still post-halving compared to the prior cycle.

S&P Global Commodity Insights Bitcoin Energy Consumption Index shows the energy consumption per bitcoin mined using the standard graphic card Antminer S19 Pro, which has an average 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 which improves every cycle depending on the amount of power directed to run the protocol at the cost of profitability to run the algorithm.

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

Energy cost contributing to the network to generate computational power to receive rewards in form of bitcoin continues to be the main determinant of profitability contributing to the network.

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

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

"I believe the original though behind the halving mechanism was that transaction fees should take up a larger and larger portion of the miners' total profitability, rather than the block reward, until the latter disappears entirely in 2140". Pettersen said.

Stoewer also highlighted that transaction fees are not cut in half and are set to make up a greater portion of the future mining revenues.

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 spot power prices have dropped from their winter peaks both in the US and Europe as milder temperatures along with strong renewable generation has supported bitcoin mining profitability prior to April 19 halving event.

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

A rebound in bitcoin mining profitability has been observed in SPP North Hub as the region registered negative off-peak day-ahead average power prices.

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

Europe

Strong renewable generation and a subdued demand has seen Spanish power prices at a discount to its neighboring European markets.

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

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

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

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

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