Bitcoin Mining Is Finally Profitable — Does This Prove We’re in a Bull Market?

According to economist and global market analyst Alex Krüger, the breakeven cost for an efficient Bitcoin mining operation currently hovers around $3,550.

With Bitcoin’s price at $5,265 on the major cryptocurrency markets, miners can expect to make a healthy profit for every block they mine, considering the breakeven price of $3,550 and Bitcoin’s potential appreciation.

|| Does this mean the beginning of a Bitcoin bull run?

While Krüger’s analysis used an electricity cost of $0.055 per kilowatt-hour, prices can vary depending on where a miner is located.

For example, Krüger said that CoinGeek reported in December an electricity cost of $0.073 per kilowatt-hour for mining the proof-of-work (PoW) cryptocurrency, which would raise the breakeven cost of bitcoin mining.

Throughout the second half of 2018, and particularly in the final months of the year, the breakeven cost of mining Bitcoin fell below the actual price of Bitcoin, resulting in record net operating losses for mining companies.

Many mining companies have had to continue operating in the bear market because most operations have long-term energy agreements with electricity suppliers, purchased expensive ASIC equipment, and signed long-term leases to operate large Bitcoin centers.

Bitcoin mining became largely unprofitable in the second half of 2018 due to falling bitcoin prices.

As Andreas Antonopoulos, a cryptocurrency and security expert, put it, regarding the “death spiral” theory, which states that Bitcoin could be in a “death spiral” if all miners leave the protocol, it would be difficult for miners to abandon their business and their original commitment.

“Part of the reason it’s unlikely to happen is that miners have a longer-term view,” Antonopoulos said. “That means they have existing equipment investments and they typically buy power on a long-term plan, not on a weekly basis. So if they have to wait another three months to be profitable and have the equipment in place, they’re not going to shut down.”

As a result, many mining companies continued to protect the Bitcoin blockchain network by mining during the brutal 16-month bear market.

Now that Bitcoin mining is profitable again, assuming the Bitcoin price doesn’t fall below $4,000 in the near term, more mining companies could enter the field of mining the dominant cryptocurrency ahead of the block reward halving scheduled for May 2020.

When a block halving is executed, the rate at which miners produce new coins decreases, resulting in a decrease in miner profits.

However, since the bitcoin price generally rises after a halving of rewards as it reduces the potential circulating supply of bitcoin on exchanges and other markets, miners generally end up in a good position.

|| Crypto market sentiment is improving

While there is no guarantee that cryptocurrencies have entered a bull run, the turnaround in Bitcoin mining to profitability is a positive sign. Whether Bitcoin mining profitability can effectively signal the end of the cryptocurrency market is difficult to conclude.

However, considering that mining is an essential component of cryptocurrencies, a healthy mining ecosystem will boost sentiment in the Bitcoin and other cryptocurrency markets, especially for Proof-of-Work blockchain networks.

What’s more, Bitcoin has historically seen an upward trend in the year leading up to its block reward halving, a statistic that miners may want to consider in the near future.