Sam Doctor, a well known quantitative analyst at Fundstrat, has tweeted his recent research of Bitcoin mining costs doubling since May even though there has been a case of the bears in the market.

Hash rate has doubled in 6 months

The table shows that the hash power is at 57 EH/s which is double of what it was back a few months ago in May when it was 28 EH/s. This means that it will cost more than $4,000 per BTC regarding average electricity cost. Excluding wear & tear and overheads, the increased costs can lead to it becoming in the ballpark figure of around $7,000 per BTC.

CoinMarketCap shows the price of Bitcoin at $6,343.50 at the time of writing, which does not quite add up in terms of profitability when mining costs are at around $7,000.

Why the hash rate does not matter

However, the rising costs of mining Bitcoin have not hampered its growth. This is evident as Bitcoin still remains as the most valued cryptocurrency. The main reason for this may be attributed to its growing purpose as an investment asset alongside loyalists sticking to the top-ranked cryptocurrency.

Large mining entities like still favour mining Bitcoin than shifting to mining altcoins which smaller individual miners are drifting towards due to profitability.

Bitcoin’s latest news on Lightning Network seems to be on the radar too which gives positivity in the overall Bitcoin market.

One significant statistic that needs to be discounted is the electricity cost Doctor has taken into consideration which is $0.06/kWh. Many mining pools are secretive about their daily cash flows, and hence the electricity costs could be far lower.

Opportunity Cost of Short Term vs Long Term

David Sapper, the chief operating officer (COO) at Blockbid Crypto Exchange, explained it best in an interview with Bloomberg in August 2018, where he stated;

“The increased hash rate means people are here for the long-term because they’re happy to just accumulate what they have, potentially even run at a loss. At the same time, At the same time, they do sometimes have to clear house and dump (though).”

In other words, Bitcoin miners don’t care about short-term losses as the long-term benefits are much higher in terms of opportunity cost.

Bitcoin mining and hash rate explained

Bitcoin mining can be explained as the process of new Bitcoins being created when computers process transactions by solving complex puzzles in exchange for a token based reward. Hash rate is the speed at which the complex puzzle is solved.

Since the mining power has doubled, it means that calculations needed to generate new coins have become harder leading to higher expenses. It is an important characteristic of Bitcoin, where it limits supply and controls the dominance.

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