This article was originally published in The Withdrawal Issue of Bitcoin Magazine.
This article is written as of block height 789,088, using a BTC price of $30,000, and $0.065 kWh for the modeling.
The number one question everyone inevitably asks themselves is: How could I possibly outperform bitcoin? You will not find a single answer, and in most cases the answer is undoubtedly that you cannot. A corner case for finding this performance unicorn is bitcoin mining. While this is far from a get-rich-quick path to acquiring sats, it can be achieved. The ultimate goal is attainable: Satsflow. Veteran and noob miners alike have performed the proverbial running of the numbers, but where do you start? What should you be looking at in evaluating ASICs? Can you actually make some sats by mining? By the end of this article, you will have a baseline understanding on evaluating and valuing ASICs, how to calculate Satsflow, and what a path to ROI looks like.
When you first consider making an investment into bitcoin mining, you may feel overwhelmed or unsure where to start. If you knew how much business takes place on back-channel Telegram messages and on Google spreadsheets, you’d be blown away; it’s a ton. But what’s really telling is how immature the services and supply chain is for bitcoin mining. The opportunity for new entrants is massive and we are seeing remarkable growth in the data side of the business. Better data means miners are able to make better decisions than they could in years past. But the big questions remain: Where do I start? What are the most important metrics to wrap my head around?
When you begin watching ASIC prices — an activity that functions as a gateway drug — you will begin to see that ASIC prices are fairly correlated to the BTC price. When the bitcoin price pumps, you’ll see that ASIC resellers are increasing their prices in lockstep. You’ll also see that when price dumps, ASIC resellers are usually 2-3 weeks behind on dropping their prices. This correlation is pretty consistent when you price ASICs in dollars, but when you price ASICs in BTC, you will see things are much more flat. This throws the basics of finding value with dollars right out the window. After all, our goal is to grow our stack of sats, not lose them.
Besides ASIC price, there are 2 very important metrics that all miners are familiar with: ASIC Value and ASIC Efficiency. These two metrics are almost always included in ASIC listings and understanding them is important if you want to achieve Satsflow.
When you start watching ASIC prices, you will notice a bunch of different data points in the listing. Let’s first dig into ASIC Value, which is shown as $/TH on a price listing. ASIC Value is a measure that shows you how many dollars you are paying per terahash (TH). Over time, you will begin to notice that as the price of the ASIC fluctuates, so will the ASIC Value. As mentioned before, as BTC price decreases, so will ASIC prices. That means you would be getting a lower ASIC Value, paying less dollars per terahash as the price of the ASIC would be decreasing. Conversely, as BTC price increases, you will see a quick increase in ASIC price, giving you a higher ASIC Value. You will pay more per terahash when BTC is raging. The lesson here is that when monitoring ASIC Value, a lower price is better. You’re paying less per terahash, therefore getting a better ASIC Value. You will also see that older ASIC models tend to have a lower ASIC Value than newer ASICs, but there’s a trade-off seen in ASIC Efficiency.
The other balancing factor in valuing ASICs is ASIC Efficiency. This is the second metric you will almost always see in an ASIC listing. ASIC Efficiency is displayed as W/TH. ASIC Efficiency is a measure of how many watts it takes per terahash on the ASIC. Like ASIC Value above, ASIC Efficiency is a metric where lower is better; it takes less energy for each terahash of performance out of the ASIC. Here is where things are inversely correlated to ASIC Value. You will see that older ASICs have higher or worse ASIC Efficiency, and newer generation models have a lower or better ASIC Efficiency. This makes sense, as with each generation chips become more efficient and manufacturers are able to include more chips per ASIC.
Now that we’ve got an understanding of ASIC Value and ASIC Efficiency, how would you begin to visualize how and why these models matter? For this exercise we will model (5) Bitmain Antminer ASICs. We will look at the release year, model, price, TH, the wattage, ASIC Value, and ASIC Efficiency in order to begin to see how these ASICs compare to one another.
The key finding from this table is that you can easily see the prices and performance variance across ASIC models, not to mention the ASIC Value and Efficiency. It is worth noting that the price of ASICs will vary depending on BTC price, which also means ASIC Value will fluctuate while the other stats are static.
A helpful way of visualizing the data is to plot the ASICs on a chart and look at the relationship between ASIC Value and ASIC Efficiency. Once plotted, you will quickly see how the ASICs stack up against each other.
This chart shows ASIC Value on the X-axis and ASIC Efficiency on the Y-Axis. Remember the key point about both those metrics: The lower the metric, the better. Looking at the chart you can see the two extremes, the S9 and the S19XP. You can see that, hands down, the S9 is the champion for ASIC Value — but it also has the highest ASIC Efficiency by a long shot. The S19XP is the exact opposite; it has the worst ASIC Value, but is the champion for efficiency. This helps paint the picture but every miner is different. Some people might have near free energy and they want to absolutely max out on ASIC Value, while others are more focused on getting as much ASIC Efficiency as possible. Both strategies can make sense. It will always depend on what your goal is and more importantly how much your energy costs.
Now that we’ve got an understanding on valuing ASICs, let’s dig into Satsflow. Satsflow is a measure of the ability to generate and capture value in a bitcoin-dominated environment. Like cash flow, Satsflow is our ability to earn money through sales or revenue, or in our case bitcoin mining. Managing Satsflow is critical in maximizing your investment over time, and is important in measuring your return on investment (ROI). By focusing on Satsflow, we can extrapolate how profitable — or not profitable — various ASICs can be. This will ultimately determine if we can outperform hodling bitcoin.
To calculate Satsflow, we will need to know how many BTC an ASIC will earn per day, and how much it costs to power the machine. From there you can simply subtract the energy cost from the earnings, and you will have a simplified Satsflow for your ASIC.
In calculating how much BTC an ASIC can earn per day, you will begin to see the full picture of an ASIC investment. For this exercise, we will use the following formula to calculate daily BTC earned per ASIC.
We’ll use the Antminer S19j Pro 100T model for our exercise. As a reminder, this is a 100TH model, assuming a $30,000 BTC price and mining difficulty of 48T (an estimated 48 trillion hashfunctions required to find a block).
Now we must calculate how much our energy costs to run the ASIC each day. For this, we will use a power rate of $0.065 kWh. This is based on average U.S. industrial power rates in 2021.
Now we have the earnings made per day, and the cost to run the ASIC per day. To get Satsflow, we simply subtract the cost from earnings.
From the example above we can see that at $30,000 BTC price, and mining difficulty at 48T, a S19j Pro 100T running at $0.065 would generate a daily Satsflow of 0.00012948.
The final piece of this puzzle is calculating how long it would take to earn back the sats you spent on the ASIC from mining. For this formula we will need to take into account the BTC price of the ASIC and divide that by the Satsflow.
In this scenario it would take us 463 days to make back the sats we spent on the ASIC. This does not even account for the volatility in price, bitcoin mining difficulty, and most importantly, the halving. If you factor in the halving with price and difficulty staying flat, you would be looking at closer to 560 days to recover the sats.
Here’s the outlook for our 5 ASICs we discussed earlier with other data points from the previous example:
As you can see, the prospect of getting rich quick is no longer a thing. Difficulty has gotten to a point where you can no longer recover your sats spent in a 12-month period. It takes miners longer than ever to recoup their investment, even with the newest generation of ASICs.
Satsflow in different scenarios
As you know by now, any ASIC can be profitable if the ASIC and operational energy are cheap enough. But the example above shows us that the S9 will never be profitable with $0.065 energy at 48T difficulty, and it will take years to pay off modern ASICs. The best way to illustrate how mining difficulty and kWh prices affect Satsflow is to visualize this data. For this, the final view that could be important is to look at how Satsflow is affected by changes in your energy cost and network difficulty. Let’s now look at the monthly Satsflow for these same ASICs, but modeled with a 25% and 50% increase in bitcoin mining difficulty as well as varying kWh cost.
This view illustrates how important your energy cost is and also how an increase in the bitcoin mining network can affect your monthly Satsflow. It might not be the prettiest picture, but it is a glimpse of the reality facing miners. It’s also worth noting that the Satsflow we calculated only captures the capex and opex of the individual ASIC itself. It doesn’t factor in any of the many costs with running ASICs at scale. You must factor in all the opex of running a business — the facilities, the electrical infrastructure, and man hours, just to name a few.
At this point you are probably trying to figure out if you should buy that ASIC. Due to everyone’s situation and preferences being different, there’s not a simple, universal answer to this question. In our pursuit of Satsflow via the ultimate goal of outperforming bitcoin, you must run the numbers. Model out ASIC Value and Efficiency, and remember that lower is better. Run through the Satsflow formula and see what you can make each day in order to understand how long it will take to achieve an ROI on the ASIC. At the end of the day, you might not like what you find, and it might make sense to instead stay humble and stack sats.