Bitcoin Miners Go Silent As Price Falls
Despite being pummeled by bears, the Bitcoin mining community is channeling its inner Rocky Balboa for the final fight with Drago. Bitcoin price volatility and squeezed profit margins were a one-two punch to miners in November, with the hashrate and the price both falling by double-digits last month as some miners turned off their rigs.
But there are still some for whom the economics still make sense, and if the market bottom is in, they have nowhere to go but up.
Bitcoin Hashrate Falls 31% Since November
The Bitcoin hashrate, which reflects the amount of computing power dedicated to the network, has been slashed by nearly one-third since November, according to research published by crypto exchange BitMEX. Indeed, the 45% drop in the bitcoin price over the past six weeks has been exacerbated by a 31% decline in the hashrate, equivalent to “1.3 million Bitmain S9 miners being switched off.”
While it’s not the first crypto bear market, the conditions this time around are unique, with “nearly $1 trillion lost in crypto since all-time highs,” according to Autonomous Next. Nonetheless, some $700 million poured into this space last month from “token sales and venture investments,” which proves the resilience of the crypto crowd.
Vinny Lingham, at the helm of blockchain-fueled identity startup Civic, suggested to Crypto Briefing that until the bottom is in, bitcoin miners are in for a bumpy ride.
The landscape is constantly shifting, and it’s a very complex situation. Many miners will be pushed out but as difficulty re-adjusts, they may rejoin. The price of Bitcoin is the most important factor here and until we have a firm bottom confirmed, the mining market will be very volatile.
Bitcoin mining difficulty is adjusted every couple of weeks to maintain network integrity. The difficulty level was revised downward by 7.4% in November and 15.1% in early December, the largest percentage drop since 2011. Revenue from bitcoin mining, meanwhile, has fallen by more than half from November, which explains why some miners couldn’t wait until the difficulty adjustment. Lingham added:
The price is forcing miners to switch their hash power elsewhere or turn off the miners. This is hurting everyone, but miners are obviously most affected. There are a number of hash mining operations that work on capital reinvestment from proceeds, and they may be hurt the most if this continues.
Lingham also pointed out that “smaller miners are losing a lot less than bigger miners…It’s [easier] to lose $100/day than to lose $100,000/day,” which could turn the table on the market dynamics in favor of the little guy. But for every miner who abandons ship and switches off their Bitmain S9 miners once the price surpasses the return, there’s someone else with lower electricity rates or some other cost input waiting in the wings to take that share of the profits. He added:
Miners don’t abandon equipment – they just sell it to someone else. It changes hands and the cycles restart. In some respects, there is always a greater fool willing to take a gamble and used hand mining equipment if they believe that they can make the economics work.
The reward for those who can “make the economics work,” however, will be anything but fool’s gold once the buying returns to the market.
Decred’s Hashrate Rises Despite Falling Price
Meanwhile, mining capacity is making its way over to another project. Over at Decred (DCR), the dynamic is more akin to the tail wagging the dog, as evidenced by a rising hashrate for that coin despite the falling price. Typically it’s the price that leads and the hashrate that follows.
Chris Burniske of crypto venture fund Placeholder pointed out on Twitter that the hashrate for DCR has ballooned by more than 400% since last year amid a greater number of ASICs dedicating their resources to the altcoin. This is thanks to companies like MicroBT making mining equipment for Decred.
Burniske said that the rising Decred mining hashrate reflects a “long-term commitment from the miners” for a coin that is resistant to forks and therefore can avoid the “headaches” that resulted from the Bitcoin Cash hash war.
The important thing to note is that it’s not a zero-sum game, and as Burnikse noted it’s a “big market.” Nonetheless, bitcoin, whose market dominance currently hovers at 55%, has more to lose than any other cryptocurrency, while the miners who survive the dwindling profits could, like Rocky Balboa, stage a comeback of historic proportions.
The author is not invested in any digital assets mention in the article but is invested in other cryptocurrencies.