Bitcoin miner revenues near $5 billion, but profitability declines

Despite the bear market, Bitcoin’s price remains over 40% higher than a year ago and Bitcoin miner revenues in the first six months of this year surpassed last year’s. The coinbase reward of 54,000 Bitcoins per month remains available to be won and taken by Bitcoin miners. The reward and fees for the first three quarters of this year represented $4.7Bn in revenues for miners who are keeping the network secure (see chart below).

The investment proposition for smaller miners held good throughout most of this year, but has since become questionable as a result of a spike of computing power competing for the coinbase reward. Indeed, in January 2018, the estimated profits were about 87% of the total monthly revenues (equal to $1.03Bn), while in September they reached only 2% which in turn decreased to $0.37Bn (see chart below).

In other words, in 2018 costs have also risen together with the average harsh rate (i.e. how much power a cryptocurrency network is consuming to be continuously functional. By continuously functional we mean how much hash power it is consuming to generate/find blocks at a normal mean time of 10 minutes ). This increased consumption has got miners gone into the red.
China, with an average cost of $0.08 kw/h at retail, and estimated to be half that at wholesale, is currently one of the handful of countries that would make economic sense to mine for Bitcoins with retail prices. Even then, however, equipment, salaries, rents, overheads (i.e. regular, necessary costs) could make inexperienced mining operations unprofitable.
Bitmain, which released new information about their operations to support their upcoming Hong Kong listing, revealed a business model that could bring new economic realities – and powers – to the fore.
The experienced company, currently running two of the largest mining pools, is also a key investor in ViaBTC, and is actually banking on the sale of mining equipment. In the first half of this year, 95% of revenues came from the sale of its miners. Business then, for Bitmain is good when miners are earning. And according to its IPO disclosures, the mining equipment mammoth sells just over half (51.8%) of their miners to international clients. And Bitmain estimates that it has gained control of about 75% of global market for miners.
While Bitmain has spread its tentacles across the world with operations and warehouses, it also runs 11 mining facilities in China – home to 200 thousand mining units. Should those units represent S9 miners (the antminer S9 supposed to be the most powerful miner thought to generate a positive ROI in the 2018 environment), and be fully deployed to mining Bitcoin alone, this could represent a near 6% of the networks current hash power, which sits just below its all-time high.
With three more mining farms planned to go online in the first quarter of 2019 in the United States (more precisely in Washington State, Texas, and Tennessee), all this could see Bitmain acting as a swing producer in an effort to keep the network profitable for all miners – including their own operations in the west where operating expenses are likely to run much higher than in their home base.
It is unlikely then that the recent tapering out of the Hash power to last. With big mining operations on low electricity costs running at anywhere between 50-60% gross profit from Bitcoin revenues, the market has a lot of room left to grow and, profits to squeeze. But Bitcoin mining has, at least for now, and most likely in the future, moved into the court of bigger players with deep pockets.