Bitcoin price drop tests the resilience of crypto miners

While many mining operations have good profit During bitcoin’s runup last year, the recent drop could penalize those with less efficient operations.

Mining – which uses powerful computers or servers to solve math problems and order transactions on bitcoin’s blockchain – is an expensive business, fraught with regulatory and environmental concerns, and falling prices only exacerbate the situation. Makes it complicated.

Miners who are not as skilled, or are more signed costly Matt Schultz, executive chairman of miner CleanSpark Inc., said power contracts can be pushed or messed up.

“When oil prices fall, less efficient producers in West Texas shut down. The same thing is happening here,” he said.

The sell-off comes at a vulnerable time for the industry as Kazakhstan has cut power to miners and Russia’s central bank has proposed a ban on miners – meaning that roughly 15% of all bitcoin mining power is lost by some estimates. may need to be relocated accordingly. While the sector was able to bounce back after a similar block in China, there may have been more casualties. time Around.

CleanSpark, Marathon Digital Holdings Inc., Bitfarms Ltd. and Hut 8 Mining Corp. K shares are down more than 30% this year. However, companies that have used their excess cash — either from bitcoin’s rally, public offering or newly issued debt — to purchase more efficient mining equipment are likely to fare better.

With bitcoin trading near $36,700, miners with old machinery – who make up about 23% of the computers that support the network – are dangerously close to the threshold where they cannot make enough to cover the cost of electricity. Let alone labor and other expenses, research from digital asset fintech firm BitOoda shows.

Meanwhile, those with the latest mining servers will only be threatened with shutdown if bitcoin drops as low as $20,000, Bituda said.

This means companies like CleanSpark that have recently sprung up to more efficient machines, mostly the Bitmain S19 Pro, have nothing to worry about. CleanSpark, with operations in Georgia and Upstate New York, mins approximately 10 bitcoins per day and incurs between $5,000 and $6,000 in operating costs to mine each coin.

“So even at $33,000 per bitcoin, we are still pretty profitable,” Schultz said.

Such actions also put pressure on less skilled competitors, as adding more computers to the network makes it more difficult to earn tokens. Even for the price of bitcoin to remain stable, miners’ revenue is expected to drop by a third by the end of 2022 due to increased competition, according to Bituda. However, an industry shakeout could stifle those hopes.

Charlie Schumacher, a representative for Marathon, recently ordered more mining gear, saying, “We’re all competing for the same amount of bitcoin every day. If we find ourselves in a situation where working for other miners is unprofitable.” Because they have a very high cost, we – because of our size and scale – will earn more bitcoins in that case.”

During the cryptocurrency winter of 2018, when many businesses shut down and sold their machines, daily miner revenue fell by about 85% and bitcoin’s network hash rate – a measure of the computing power it supports – dropped 80 percent. % fell over, according to Blockchain. com.

There are already signs of similar pressure. Current prices of used mining equipment have been sliding for months in line with the hashrate index. Furthermore, data from Blockchain.com shows that bitcoin’s network hash rate has begun to decline after reaching a seven-day average high on January 19.

Sam Docter, Bituda’s chief strategy officer, said, “Over time, if the price continues to decline – or if the bitcoin price stabilizes at current levels and the hash rate rises – some miners may eventually become older generations.” The machines have to be shut down.” But the overall network hash rate is high enough that even a large drop should not threaten the integrity of the network.”

This story has been published without modification in text from a wire agency feed.