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Bitcoin mining is the cornerstone of the crypto industry and market. At its core, mining profitability comes down to a single crucial metric: the cost of producing each bitcoin.
The importance of this cost becomes even greater when it comes to publicly traded Bitcoin mining companies, as it is essentially what keeps them operational and ultimately profitable. In this report, CryptoSlate will focus on Marathon Digital and Riot Blockchain, two of the largest public Bitcoin miners.
Marathon Digital (MARA) and Riot Platforms (RIOT) are two of the largest public Bitcoin mining companies by market capitalization. Their operational and financial capacity offer important insights into the state of Bitcoin mining at its highest and most organized level.
Although all public Bitcoin mining companies, including Marathon and Riot, provide data on their mining costs, the numbers they publish are often more numerous. Some companies use different accounting treatments for digital assets, which impacts their book value. Some companies have multiple mining sites spread across various geographic regions, each with different electricity prices and mining capacities.
To better understand the average cost of mining a bitcoin, CryptoSlate took an alternative approach: dividing each company's total cost of revenue by the number of bitcoins it produces. This method, while more speculative, promises a more revealing reflection of actual mining costs.
Dividing the total cost of revenue by the number of Bitcoins produced provides a complete view of the expenses incurred in the mining process. This approach goes beyond just electricity or operating costs, including all direct and indirect costs associated with mining, such as equipment depreciation, maintenance, personnel and administrative expenses.
By aggregating these costs, this method shows what it actually costs a company to mine each Bitcoin. It faithfully reflects economic reality, capturing all expenses that have an impact on results. This helps us understand the efficiency and profitability of Bitcoin mining operations and is a valuable tool for analysts and investors seeking to understand the financial health and operational efficiency of mining companies.
Digital Marathon (MARA)
Marathon had a very successful 2023, increasing its operational capacity through acquisitions and new mining equipment. The company also announced that its acquisitions allowed it to reduce its operational costs by up to 30%, significantly influencing its profitability.
However, there is little concrete information directly from Marathon on the company's mining costs. A month of September analysis from Motley Fool estimated Marathon's cost to mine 1 BTC at just under $19,000. The company's latest monthly update for December 2023, it only shows hash rate capacity increases and technical details on its mining performance, but does not contain any information on its mining costs.
Our main source of data is that of the company 10-Q Report for the third quarter of 2023. To determine the average cost of mining 1 BTC, we will use the alternative method of dividing the total revenue cost by the number of Bitcoins produced in the three months ending September 30, 2023. Data from the report shows the total cost of revenue at $113.176 million. Subtracting the total margin from the cost of revenue, it comes to $97.849 million.
With the company producing 3,490 BTC during the quarter, dividing the cost of revenue by the number of bitcoins produced brings us to a mining cost of approximately $28,036.96.
Riot Control Platforms (RIOT)
Riot spent most of 2023 implementing a long-term strategic plan to help the company remain profitable following the April 2024 Bitcoin halving. update for the third quarter of 2023, the company's CEO said its energy strategy allowed it to reduce its year-to-date mining cost to $5,537 per Bitcoin.
This extremely low cost can be attributed to Riot's specific business strategy, which involved obtaining electricity credits from the Electric Reliability Council of Texas (ERCOT). Riot participates in ERCOT's Demand Response Program, which reduces electricity consumption during peak periods in exchange for electricity credits. These credits reduce Riot's electricity costs, a major component of Bitcoin mining expenses.
To get the average cost of mining a bitcoin for Riot, we'll apply the same methodology to Marathon: dividing the cost of revenue by the number of bitcoins mined in a given period. According to Riot's 10-Q filing for the third quarter of 2023, Riot's cost of revenue for Bitcoin mining was $24.449 million. During this period, Riot mined 1,106 BTC.
Dividing the total cost of Bitcoin mining-specific revenue by the number of BTC mined, we find that Riot's average cost to mine a Bitcoin in Q3 was approximately $22,105.78.
This puts Riot's mining cost close to Marathon's $28,036.96. However, a critical part of Riot's operational strategy is its engagement with ERCOT. During the third quarter of last year, Riot received approximately $49.6 million in electricity reduction credits from ERCOT.
According to its 10-Q filing, if the $49.6 million in electricity reduction credits for the quarter were directly allocated to the cost of Bitcoin mining revenue based on its proportional energy consumption, they would decrease by 31. 2 million dollars. In this case, the adjusted cost of revenue would result in a negative value of -$6.751 million, showing that the credits would offset Riot's initial cost.
Given this data, the average cost to mine one bitcoin would be approximately -$6,105.78. While this is a highly unlikely scenario, it shows how substantial the impact of electricity reduction credits could be on Riot's mining operations and how much they could contribute to overall profitability.
The article Marathon vs Riot: Analyzing the Real Cost of Mining 1 Bitcoin appeared first on CryptoSlate.
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