There are two key trends happening in the world of cryptocurrency adoption that will impact how we look at the profitability and sustainable growth of Bitcoin mining. On the surface, mining Bitcoin might seem akin to mining other assets like gold. You purchase the materials, set up your operation, mine for the asset, and then eventually sell it off for a profit. Still, despite certain obvious similarities, there are fundamental differences between these types of industries.
Bitcoin is unlike any other asset in the world. While other cryptocurrencies mirror its blockchain technology, BTC remains the king of the hill by tremendous leaps and bounds. Still, there are critical issues related to Bitcoin mining and trading that other assets are insulated from. The most obvious of these problems are BTC’s price volatility and the exponentially increasing difficulty associated with its mining.
If you were looking at BTC mining in the same lens as you would the Gold Rush, you’d rightfully realize that you’ve probably missed the boat and that there’s no way to make this type of operation sustainable or scalable. This is why so many newcomers to the BTC mining world are put-off by rising hash rates (aka increasing mining difficulty) and the seemingly earth-shattering corrections that Bitcoin experiences from time to time. If your only objective is to simply attain BTC and sell it off for a profit, then the rising costs of acquisition are clearly going to eat away at your bottom line.
Put plainly, the aforementioned perspective leaves out several critical parts of the bigger picture. We’ll break down the two main trends associated with BTC mining as we go through this article, but what you need to know now is this: Bitcoin mining profitability is not solely tied to BTC prices based on a USD standard. It’s also crucial to understand BTC is an actual currency and a monetary asset rather than a value-based commodity.
2 Key Trends Affecting the Bitcoin Mining Industry in 2022
1. Bitcoin Standard Mental Model Framework & Bitcoin Mining Fees
“Bitcoin is the freest market in the world” - Dylan LeClair, Head of Market Research at Bitcoin Magazine
In a recent interview about Bitcoin price forecasts with The Pomp Podcast, Dylan LeClair focused heavily on the concept of adopting a BTC standard mental model framework. What he means by that is to start evaluating markets based on Bitcoin as the standard monetary asset. So, rather than viewing economic performance in terms of a more stable fiat currency like USD, LeClair suggests we should look to BTC as a benchmark.
For some of you, this concept might seem outlandish or even idiotic. For others, it probably appears vague and befuddling. Either way, the point that LeClair is making is more about the idea that Bitcoin will likely be adopted as a benchmark monetary asset for more and more nation-sized institutions within the near future.
What that prediction really entails is an increased utilization of BTC as an actual currency and an advanced integration within national economies and large investment organizations. That equates to BTC additions to national reserves, strategic national BTC mining operations, and large-scale Bitcoin investments coming from actual nations along with private banks and other financial institutions.
So what does this mean for Bitcoin mining? Well, as LeClair puts it, “there is an unforgeable costliness to Bitcoin mining, similar to gold.” In other words, Bitcoin is programmatically designed to become costlier and harder to mine as more people adopt the currency. And therein lies the paradox of this industry.
As more nation-states and other large-scale economic institutions adopt a Bitcoin standard or otherwise begin to look at BTC as a viable monetary asset, the price of BTC will inevitably rise and the transaction fees that Bitcoin miners profit from will also increase. And, even if BTC prices dip, the transaction fee profits associated with increased Bitcoin adoption and utilization will likely sustain the mining industry.
The bigger picture that LeClair is hinting at involves a world where BTC overtakes USD as the predominant global currency. While that reality would obviously generate a more concrete outlook on Bitcoin mining longevity, we like to focus on the most likely scenarios to create our forecasts. What we know to be a near certainty is that Bitcoin will continue to be adopted and utilized by both individuals and financial establishments around the globe. This adoption and utilization will increase the cost and difficulty associated with mining. However, it will also most likely increase the price of BTC and the profit derived from transaction fees that miners can enjoy.
Eventually, when bitcoin mining profits are largely made up of exchange-based fees, then the price volatility will matter much less to the mining industry. Essentially, if you can derive value through mining that’s based on Bitcoin transactions more than it is on gaining and selling the currency, then you can get to a place where mining continues to grow in profitability even as the mining difficulty increases and the price of BTC falls. Of course, it’ll be all the more profitable if BTC prices continue to rise year over year. Still, even during periods of dramatic price corrections, BTC mining is poised to become fundamentally insulated from Bitcoin volatility.
2. ESG Compliance & Wasted Energy
“This is the story of 2022.“ - Kevin O’Leary (aka Mr. Wonderful) on Bitcoin Mining and ESG
The second-largest trend impacting the Bitcoin mining world involves ESG (environmental, social, and governance) compliance. If you’ve heard anything about the environmental costs of cryptocurrency mining in the last few years, then you’re already somewhat familiar with the principles of this concept. All forms of resource extraction seem to generate negative humanitarian and environmental impacts. When done improperly, Bitcoin mining is no exception to this rule.
Basically, BTC mining requires a great deal of electricity in order to operate and regulate temperatures for the actual hardware. This creates a negative environmental impact. And of course, many unscrupulous mining companies have decided to establish footholds in developing nations where energy is cheap and the legislators have a lack of regard for the community as a whole.
In another recent interview with The Pomp Podcast, Shark Tank investor Kevin O’Leary (aka Mr. Wonderful) stated that he is actively seeking BTC mining investment opportunities wherever the government and various localities are actively on board and committed to a crypto-based future. He even mentioned the recent innovation of using heat exhaustion from oil rigs in West Texas to subsidize the power of BTC mining operations. This is the type of efficient energy utilization that will potentially propel the BTC mining industry despite the headwinds associated with rising hash rates.
The future of the BTC mining industry will revolve around global ESG compliance. That means working with local governments and societies to identify environmentally sustainable ways to mine BTC while also caring for the earth and creating wealth for the community. At Crypto Knight Hosting, we proudly work directly with the Wyoming State Legislature to ensure that we are not only ESG compliant but are also actively generating real progress for the local residents and the entire state.
So Should You Start Mining Bitcoin?
The short answer is yes. Just probably not on your own. BTC prices will probably continue to be as volatile as ever moving forward. The costs and difficulty associated with mining are unavoidably going to rise. It’s even possible that BTC will experience a dramatic price correction without a significant increase for the foreseeable future.
And, still, while all of these seemingly negative factors are real, they are also tailwinds in disguise. The more that BTC gets utilized, the more transaction fees miners will receive. The more that BTC gets utilized, the more valuable it will inevitably become. And the more efficient we become with hardware capabilities and environmental sustainability, the more profit margins will grow for BTC mining.
All of this being said, there’s not much sense in going out and purchasing an individual ASIC BTC miner to install in your home or office. It’s simply not a cost-effective approach and likely won’t ever be at this point. Instead, you can invest in 10 or more ASIC miners with us and receive the full support of our expert team, state-of-the-art facilities, and industry-leading equipment. And, we include a full-year contract to cover electricity costs for each miner at a competitive rate.
In short, you shouldn’t think of Bitcoin mining as akin to trading cryptocurrencies. This is a rapidly growing industry with ever-increasing insulation from BTC price volatility. With Crypto Knight Hosting’s hybrid mining solutions, you can dive headfirst in this constantly expanding market without having to deal with any of the hassles. Click here to get in touch with one of our sales reps to learn more about our BTC mining solutions today.