Less than a month ago, Bloomberg New Energy Finance discussed BTC mining profitability in China as a function of power prices:
"Even at the country’s highest regulated electricity tariff, miners can profit from bitcoin as long as it’s worth more than $6,925, BNEF analysts including Sophie Lu wrote in a report Wednesday. The digital currency was last in that range back in mid-November and currently trades at about $13,900.
Bitcoin’s 1,400 percent surge last year saw greater demand for electricity to run the computers used in the cryptocurrency’s mining. About three-quarters of those machines ended up in China, the world’s largest electricity user, which is now seeking to discourage the practice given a surge in power use in some provinces."
When the Bloomberg article was published, Bitcoin was trading at $13,900.
This morning, $BTC dropped below $6,000 - making it unprofitable for Chinese mining operators who pay industrial retail rate for electricity:
What will happen now?
It's unlikely that mining operations just stop. Their sunk infrastructure costs are significant. Specialized BTC mining equipment (like Antminer S9 from Bitmain) is becoming difficult to sell at volume.
If they do stop, however - the network difficulty is supposed to adjust, in theory making it more profitable for the remaining mining operators.
From Bitcoin wiki:
The difficulty is adjusted every 2016 blocks based on the time it took to find the previous 2016 blocks. At the desired rate of one block each 10 minutes, 2016 blocks would take exactly two weeks to find. If the previous 2016 blocks took more than two weeks to find, the difficulty is reduced.
Next 3 weeks are going to be very interesting.
February 17 2018 update:
$BTC has recovered very nicely, and is now hovering above $10,000 mark.
Header photo courtesy of CoinDesk