The CoinWarz mining calculator has released data suggesting a higher profitability in Dogecoin mining than Bitcoin. Given the extended crypto winter, mining profitability hasn't been the same, leading some miners to bankruptcy.
Most Bitcoin miners declared bankruptcy after long struggles to stay afloat, while others who think they can keep up continued grinding. With the high cost of mining Bitcoin plus high hash rates, Dogecoin mining appears more lucrative than Bitcoin.
Is DOGE More Profitable Than BTC?
CoinWarz mining calculator indicates that Dogecoin’s profitability has been increasing while Bitcoin’s remained low over the past two weeks. Despite the higher electricity rates recorded by DOGE miners compared to Bitcoin, the meme coin has maintained high profitability.
CoinWarz’s mining profitability chart below indicates that DOGE miners are paying $8.22 per electricity while Bitcoin miners are paying $7.22. But this difference did not reflect the profit margins between the two cryptocurrencies.
More so, the mining difficulty for both within the 14 days varied compared with their electricity expenses. DOGE saw a higher difficulty increase than Bitcoin.
Interestingly, DOGE is not the asset yielding the highest profit for miners. Verge token is leading the pack. Verge (XVG) refers to a decentralized, open-source digital currency that offers anonymous transactions by blocking the participants' server location and IP address. The coin launched in 2014 as DogeCoinDark but later changed to Verge in 2016.
Verge offers rewards to miners for their contributions with XVG tokens. According to CoinWarz, Verge’s hash rate is currently 96.97 GH/s, while DOGE's hash rate caps at 529.90 TH/s. Verge has the highest mining profitability, placing DOGE in the second position on CoinWarz’s chart.
DOGE Versus BTC Investor Profitability
Bitcoin appeared fourth on the chart tailing behind Peercoin in Third place, in contrast to its title as the leading cryptocurrency. However, BTC remains the network with the highest hash rate at 277.16 EH/s. But this is a 13.5% decline from its all-time high of 317.6 EH/s on January 7.
Bitcoin is also lagging in terms of investor profitability. Currently, Dogecoin is taking the lead with BTC following. According to data from IntoTheBlock, 57% of DOGE investors are making profits, while 53% of Bitcoin holders are gaining. Additionally, about 37% of Bitcoin investors have incurred losses compared to Dogecoin’s 35%.
Possible Reasons For Bitcoin’s Low Miner Profitability
In the crypto winter, Bitcoin miners have been facing financial difficulties. The high hash rates, increase in mining difficulty, and production costs are not making matters easy. As of October 2022, a Glassnode analysis indicated that miners were about to face more income distress with increased production costs.
On October 3, 2022, the Bitcoin hash rate hit an all-time high of more than 245 EH/s. At the same time, Bitcoin miner profitability dropped to the nearest minimum. Mining difficulty measures the ease with which miners can generate a block. It is one of the determinant factors for the production cost of Bitcoin mining.
More mining difficulty automatically leads the network to require higher computational power to mine a new block. Glassnode’s Bitcoin difficulty regression model data showed an R2 coefficient of 0.944. According to reports, this could indicate potential low mining profitability. The last time the regression model flagged such signs was when Bitcoin dropped to $17,840.
At the time of Glassnode’s analysis, Bitcoin was trading at $18,300, nearly the $17,840 range. Bitcoin is currently trading at $17,458.7, an even lower price level than the one Glassnode flagged in October 2022. This level could be the explanation for the low Bitcoin mining profitability that miners are experiencing. Moreover, Bitcoin’s current hash rate is even higher than it was during Glassnode’s analysis.
Miners Witness Income Distress With Increase Bitcoin Hash Rates
Furthermore, high hash rates mean miners' profit margins will face further distress. The implication is that unprofitable mining centers will be at a loss if Bitcoin’s price declines further. These miners can either continue mining and make up for their loss if the BTC price rises in the future, or they can halt operations until difficulty improves or energy cost reduces.
However, this may not be the case if the Bitcoin price continues rising and the hash rate reduces as it did from the January 7 level. Following Bitcoin’s price history, from Statista's data, the cryptocurrency has seen a steady increase from January 1 till now.
Bitcoin miners’ businesses often experience booms and bust cycles that move along with coin market price. According to Glassnode, the busts allow miners to track when they must liquidate some portions of their BTC income and treasuries. Busts also help participants identify when recovery is underway or when winter is clearing.
Mining hardware becomes unprofitable when the industry is in acute income stress like miners are experiencing in the ongoing bear cycle. Some Bitcoin miners, including Core Scientific, went bankrupt last year due to plunging crypto prices and increased energy costs. However, higher hash rates reflect the Bitcoin network’s security from malicious attacks.
Below is a chart showing estimates of miner profitability based on the hash rates and energy cost.
While DOGE and Bitcoin are proof-of-work coins, their miner's profitability disparities have yet to waiver the support from crypto market players. Both cryptocurrencies closed the last weekend with an upward price movement. Today January 11, Bitcoin price has gained 1.19% within the past 24 hours and trades at $17,458.73, while DOGE has gained 0.74% and is currently at $0.076923.
The information above is mainly to educate crypto enthusiasts about trends in the sector. It is not investment advice and not the official view of Margex. Readers should conduct in-depth research before investing in any crypto asset, given the risks that characterize such investments.