The profitability of Ethereum mining has been declining for several months now.
The decline in the profitability of Ethereum mining
After peaking in mid-May 2021, when it went as high as $0.28 per day per MHash/s, it had fallen as low as $0.05 between June and July, but then seemed to recover, rising to almost $0.09 per day in November.
Since then, however, a long decline has begun, bringing it back down to its current $0.05 per day per MHash/s.
Viewed in this way, this would appear to be to all intents and purposes a downward trend triggered after the peak in mid-May 2021, but we need only go back a little further in time to see that this is not the case at all.
In fact, if on the one hand, the downward trend is clear, especially from November onwards with a loss of 45% of mining profitability against a drop in the price of ETH of 33%, on the long term the trend changes aspect.
Taking the last months of 2020 as a reference, i.e. when the 2021 bull run had not yet started, profitability has since increased by 66% as it has risen from $0.03 to the current $0.05 per day.
However, the downward trend could continue further, especially if the price of ETH does not rise significantly over the next few months.
The rise of Ethereum’s hashrate
The key issue is the increase in hashrate, which has not only been almost constant since the end of June 2021, but does not seem to want to stop. On the contrary, it is likely to continue in the coming weeks, perhaps just until mining profitability has dropped again to around $0.03 per day per MHash/s.
After collapsing in May and June 2021 due to the ban on crypto mining in China, Ethereum’s hashrate has risen again, from the then 480 Thash/s to the current 970.
It is worth noting that in this particular period, the hashrate increased by 102%, while the price of ETH increased by 77%. This might suggest that the hashrate is not set to increase any further should the price not rise, but taking the last months of 2020 as a reference, the scenario changes.
Back then, Ethereum’s total hashrate was around 290 Thash/s, so it has grown by 234% so far. The price of ETH, on the other hand, has grown by 433%, so it is definitely possible that the hashrate could grow further, also due to the fact that the profitability at $0.05 per day remains attractive for the entry of any new miners.
Therefore, Ethereum mining is still profitable at the moment, although not as profitable as it has been in recent months, but in the coming months its profitability could drop quite a bit, especially if the price of ETH does not increase.
The move to PoS
There is another unknown factor. With the future switch from Proof-of-Work (PoW) to Proof-of-Stake (PoS) ETH will effectively no longer be mined, as PoS does not require miners to validate blocks.
This could lead to many miners not investing further in new, more powerful machines, and discourage new miners from entering. To be fair, if this dynamic was already in place, we should see a slowdown in hashrate growth, but it is remaining fairly constant. The fact that we do not know the date of the final switchover to PoS, and the past history of continuous postponements of this momentous transition, may lead many miners to ignore the problem, at least for now.
This is certainly not the best time to start mining on Ethereum, whereas it might be for Bitcoin, given the problems of Kazakh miners. However, from this point of view the future of the world’s two main cryptocurrencies should soon be separated, since if Ethereum will switch to PoS, Bitcoin will continue with PoW.