Monday Mining Metrics: ASIC Prices Explained
Monday Mining Metrics: ASIC Prices Explained
Bitcoin Mining Update - 5/6/2024
How to Evaluate the Profitability of Bitcoin Mining (Part 2)
In last week’s edition of “Monday Mining Metrics” we covered the dynamic variables affecting Bitcoin mining revenue (hashprice). This week we are going to examine the cost side of the equation.
Costs can be divided into two subcategories: fixed and variable.
Fixed costs include physical infrastructure (racks, fans, energy source), land, ASICs, etc.
Variable costs include electricity, occasional ASIC repairs, and, depending on the size of the operation, labor.
The advantage of hosted Bitcoin mining is that the host takes care of nearly all of these for you. They build the mining facility and run day-to-day operations. The only costs you have to concern yourself with is the cost of your ASICs (fixed) and the cost of your electricity (variable). Let’s start with the latter.
Electricity Costs
Over the past 15 years, the Bitcoin mining industry has grown tremendously. As such, so has Bitcoin mining difficulty. Rising mining difficulty has made it unprofitable to mine with most standard retail electricity rates. This dynamic spawned the hosted Bitcoin mining industry.
Companies such as Blockware do the leg work of sourcing low-cost power, building mining infrastructure, and running day-to-day operations. Clients can purchase ASICs through Blockware and have them hosted at Blockware’s facilities. This allows anybody to mine Bitcoin, even if they do not have access to low-cost power themselves.
Pictured below is one of Blockware’s mining facilities located in Eastern Kentucky (United States).
ASIC Efficiency
Once you’ve sourced low cost power the next thing you’ll need is an ASIC that can use that power effectively. The hashrate of an ASIC determines its revenue, but what matters on the cost side is an ASICs energy efficiency. This is measured in Watts/Th (W/Th).
Side note: You may also see it written as Joule/Th (J/Th).
The objective of ASIC manufacturers such as Bitmain and MicroBT is to create machines that produce as many hashes as possible while simultaneously consuming as little energy as possible to produce the hashes. Let’s compare the two most recent Bitmain ASICs to illustrate this point:
As you can see, the S21 consumes more energy than the XP (3500W vs 3031W), but it is able to produce more hashes per unit of energy consumption. The Antminer S21 is 19% more efficient than the S19 XP.
Net-net: the most profitable ASICs are those with the lowest W/Th. ASICs with a low W/Th provide a miner with downside protection during bear markets, and enormous profit margins during bull markets.
ASIC Prices
ASIC prices are incredibly dynamic and are contingent on a few key variables. First and foremost is hashprice.
Hashprice, which we discussed in last week’s mining update, is a measure of mining revenue. There’s a tight correlation between the amount of revenue earned by Bitcoin miners and the price of ASICs. If hashprice increases by 100%, you can more or less expect ASIC prices to do the same thing.
The other primary factor affecting ASIC prices is the emergence of newer machines. The latest and greatest ASICs, with the best energy efficiency, are going to cost more than middle or older-generation models.
For example, on the Blockware Marketplace, the lowest-priced S19 XP is roughly $4,070 USD. The lowest-priced S21 is roughly $6,450 USD.
Viewing ASIC prices in terms of $/Th allows you to juxtapose machines while accounting for differences in hashpower.
Here you can see that the S21 is priced at a premium relative to the XP:
S21: $6,450 / 200 Th = $32.25/Th
S19 XP: $4,070 / 141 Th = $28.86/Th
Now, different miners could look at this same set of circumstances and come to a few different conclusions.
Miner A might look at this and buy the S21. Considering the squeeze being put on miners at the moment due to the recent halving, buying the most efficient ASIC possible is going to be the safest play in order to endure the current drop in revenue, protect against further potential downside, and survive until the bull market.
Miner B, who is more bullish on Bitcoin than miner A, will look at this and buy the S19 XP. If Bitcoin goes on a parabolic bull market, the marginal differences in hashpower and efficiency between the two ASICs will not make a major difference on profitability. And due to the XP costing less up-front, Miner B can fully recoup his capital expense much quicker than Miner A.
Miner C, who is more bullish and more risk-seeking than both Miner A and B, has his sights set on the S19j Pro+. At current market dynamics, the S19j Pro+ is still profitable, despite the halving, but it has far less breathing room than the S21 or the XP; which is reflected in its price. At 120 TH/s and ~$1,450 per machine, the jPro+ is going for ~$12/Th.
The jPro+ is trading at nearly a 3x discount on a per-terahash basis compared to the S21. Whenever the bull market arises, rather than continuing to mine with the jPro+ himself, Miner C will look to capitalize on the higher demand and higher ASIC prices that occur during bull markets. Miner C’s strategy is to flip the ASIC, profiting on the appreciation of his capital expense. Meanwhile, all the BTC he mined while the ASIC belonged to him is just gravy on top.
The resale value of ASICs is an oft-forgotten aspect of Bitcoin mining. This is why the most successful miners historically have been those that purchase ASICs during times in which hashprice is low. This allows them to have a much lower capital expense than if they were to purchase the same ASICs during the peak of bull markets. Moreover, the market price of their machine will increase during bull markets, allowing them to profit from capital appreciation as well as from mining Bitcoin.
ASIC Breakeven Prices
Below is a chart showing how much it costs in electricity to mine 1 BTC based on the current hashprice of $.05/Th/Day. As you can see, the more energy efficient ASICs are producing BTC for a much lower cost in electricity than the current market price of ~$63,000.
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