Bitcoin mining may become more profitable due to Oil price crash

On 20 April, U.S. Oil Futures contracts for May delivery slipped due to storage issues. The price of oil collapsed below zero, following which there was a looming fear in the market about other commodities, and even Bitcoin [BTC]. Due to Bitcoin’s uncorrelated nature with oil, the market did not face any hiccups and was able to move on. However, the reduced price of oil could spell good news for Bitcoin miners.

The catastrophic drop in oil’s price led to oil producers wanting people to buy oil; however, many oil shipping containers continue to remain idle. Going by the simple supply and demand rule, the excess availability of oil has pulled the price down to a very low level. This sudden crash in the price of oil will have a positive impact on Bitcoin mining, according to Bitcoin educator and analyst Andreas Antonopoulos.

Miners’ mining activities are heavily dominated by the cost of electricity. However, these electricity costs are dominated by fuel or the energy source through which such electricity is produced. China, which is a hub for mining activities, uses coal to generate electricity. As energy and electricity are fungible commodities, Antonopoulos in his recent AMA said,

“If you are connected to a coal fired power plant and somewhere else, a gas fired or oil fired power plant has half the cost of energy, because its oil is much cheaper, it’s going to cost less to get electricity from your coal plant, surprisingly enough, because they’re going to have to compete and operates with the loss, at least temporarily.”

Due to the fundamental principle behind electricity distribution, the price of electricity will drop worldwide as a result of the crash; however, not equally. With the biggest mining operation now set up in Texas, the United States, a country that produces a huge amount of oil due to fracking, might see electricity become cheaper. This would make mining more competitive in the country and more profitable than in the past.

However, the effects of global events have taken their own sweet time to be reflected in the crypto-market. For example, Bitcoin’s restrictive movement between $6,400 to $7,000 was looked at by many as an effect of the performance of traditional markets. The possibility of this drop in oil’s price leading to falling electricity costs may pave the way for a healthier Bitcoin network with an improved hash rate.