How does mining and Bitcoin price relate to each other?
How does the price of Bitcoin impact Bitcoin miners? Do miners impact the price of Bitcoin? Let’s sort this out, because miners are impacted by Bitcoin price in an immediate way, unlike investors who can benefit from a dip in Bitcoin vs USD.
Bitcoin mining is also known as Proof of Work / PoW. It is a protocol engineered to make miners earn and value the asset, which is Bitcoin. Miners spend time and money to contribute to the Bitcoin network and are compensated in Bitcoin for their efforts. If Bitcoin drops in price, the miner feels it because his costs for power and operations do not drop with Bitcoin. Most miners have a threshold where their price for power exceeds the Bitcoin it could mine, and in some cases, they will power off their machines when they reach that threshold.
Bitcoin is the most unique, valuable asset in the world. It is available on exchanges and through markets globally 24/7/365. Unlike every other asset, Bitcoin is deliverable. A miner in Texas can send Bitcoin to a supplier in Malaysia at anytime it is convenient for them, without a middleman or permission from anyone. This cannot be done with any other currency, gold, oil, art, hogs or soybeans. Nothing is like Bitcoin, including volatility.
Bitcoin is still a young asset, so volatility is a major consideration for miners and investors. Miners perspective is upstream and downstream from the exchange, but the exchange rate is the decider if they are profitable or not.
Upstream, miners know the price of Bitcoin. They also know the size of the network mining it, and the difficulty level assigned by Bitcoin Core. These considerations are factored in with their operating expenses which collectively contribute to the success or failure of their P&L.
The price of Bitcoin changes daily. The size of the network grows and shrinks based on the profitability of mining based on the millions of miners specific opex and availability of power. And the difficulty level is adjusted about every 2 weeks based on the size of the network on a specific point in the blockchain. This level is changed to maintain the issuance schedule of a block of Bitcoin captured about every 10 minutes, 144 times a day.
Downstream from the exchange is where the price of Bitcoin is used by miners to cover costs. Bitcoin is a 24/7/365 global marketplace with extreme liquidity and volatility. When price is up, miners can comfortably cover all their expenses. When the price crashes, miners make use of contingency plans like powering down. If they are in Texas they might sell power back into the grid. Large mining facilities may have investments in power that are designed to mitigate the seasonal increases in costs based on consumer and industrial demand.
Investors and Bitcoin buyers, like exchanges and businesses like MicroStrategy are often able to take advantage of price drops. If you are investing on a long timeline a drop in price is a better buying opportunity. And these opportunities also appear on a hash market. When miners desperately need revenue, mitigating pool fees and capturing a premium can be the difference between operating or powering down. And this is a great opportunity for buyers to be miners at a discount.
As a buyer on Atomic, consider keeping some dry powder available to deploy when prices are dropping. This can be done through an increase in hashpower purchasing. If you typically spend x daily, increase when the price falls to a threshold that is below your DCA.
Unlike exchanges that fail when volatility spikes, I’m not naming names (rhymes with GroinCase), Atomic is never down, Atomic never sleeps. But the rices for hashing are dynamic and change with demand, just like Bitcoin.
Atomic will be live and open to the American Bitcoin mining industry in Q1 2024.
Whether you are a Bitcoin miner or buyer / investor in Bitcoin, create an account and Atomic will send you an invite to Mine on Atomic.