With Bitcoin Sinking, Crypto Miners Just Dig Deeper

[seje]

he combination of falling prices and a rising hash rate -- which measures computing power -- shows how complex the economics of cryptocurrency mining are. An increasing hash rate means Bitcoin mining is still profitable enough for many players to stay put, defying speculation that prices have fallen past break-even points.


That may be a reflection of how sophisticated Bitcoin mining has become after last year’s 1,400 percent price rally. While that drew a fair share of amateurs mining from their basements, the lucrative rewards also drove major miners to up their game by snatching up increasingly speedy chips and setting up shop in places with cheap power. That’s helped them squeeze out smaller players as prices fall to the $6,000 level.

“There are still major expansions happening, especially from more efficient miners,” Marco Streng, chief executive officer of Genesis Mining, said by phone from London. “The expansion is so big that it compensated for the drop-out of not-so-efficient miners.”

New Bitcoins are created when computers compete to process transactions by solving complex puzzles in exchange for tokens. As mining power increases, the calculations needed to generate new digital coins become harder -- a mechanism designed to limit supply and dominance in the hands of few miners.

The race to get ahead with top-notch technology has intensified so much that miners became key customers for semiconductor giants such as Nvidia Corp. and Taiwan Semiconductor Manufacturing Co. And because of such advantages, the business became increasingly institutionalized and concentrated in the hands of companies like Bitmain or Bitfury.

Read more: Bitcoin Miners Facing Shakeout as Profitability Wanes

While faster gains in the hash rate have coincided with price rallies in the past, the relationship between the two isn’t so straightforward. Theoretically, a climbing hash rate should lift the price because it means the cost of each token is higher. But computing power may be rising now because of past expansions in capacity, which are a sunk cost to miners and reflect higher prices earlier. It’s also possible that miners will sell more of their holdings as margins get squeezed.

“The increased hash rate means people are here for the long-term because they’re happy to just accumulate what they have, potentially even run at a loss,” said David Sapper, chief operating officer at cryptocurrency exchange Blockbid Pty Ltd. in Melbourne. At the same time, “they do sometimes have to clear house and dump.”


Various analysts have have tried to calculate the break-even price for miners, which may offer support for prices. Bullish research firm Fundstrat Global Advisors has estimated $8,000. Morgan Stanley has said that large mining farms make money only with Bitcoin trading above $8,600, according to a CNBC report. Researchers at CoinShares, which offers cryptocurrency investment products, estimated in a May report the average marginal cost of a Bitcoin is $6,400. The digital currency traded at about $6,500 on Friday.

The number varies depending on the miner’s efficiency. Genesis Mining, for instance, is still expanding capacity, Streng said. Miners that also manufacture equipment have the benefit of immediate and cheaper access to their hardware and can adjust prices of their products to maximize profits, according to the CoinShares report.

Read more: Crypto’s Millennial Mining Tycoon Is Said to Plan $3 Billion IPO

Yet it’s clear the heydey of cryptocurrency mining is over for now. Genesis Mining said Thursday it will terminate contracts that are mining too little to cover the daily maintenance fee. Semiconductor companies are also seeing a slowdown in demand from miners. Increasingly, cryptocurrency mining seems dominated by large, competitive companies.

“The efficiency of the hardware is rapidly increasing and costs are coming down,” the CoinShares researchers Christopher Bendiksen and Samuel Gibbons wrote. “Miners are securing access to highly competitive sources of electricity, often ones that would otherwise lie idle, and show high degrees of mobility.”

— With assistance by Todd White


https://www.bloomberg.com/news/articles/2018-08-16/with-bitcoin-sinking-cryptocurrency-miners-just-dig-deeper

[Melchizedek1]

The reason why miners are still going deep and expanding obviously is a combination of factors like improved programmes that make mining easier, the feasibility of making profits ever clear and forthcoming and the use of better an improved ASICs and GPUs. Its gonna stay this way.

[Koko1200]

I do know that some of the guys are not shaken with the situation on the market and so they are definitely familiar with those states and what to do during that deep period. It's only affect unexperienced guys around.

[xanaxxx]

he combination of falling prices and a rising hash rate -- which measures computing power -- shows how complex the economics of cryptocurrency mining are. An increasing hash rate means Bitcoin mining is still profitable enough for many players to stay put, defying speculation that prices have fallen past break-even points.


That may be a reflection of how sophisticated Bitcoin mining has become after last year’s 1,400 percent price rally. While that drew a fair share of amateurs mining from their basements, the lucrative rewards also drove major miners to up their game by snatching up increasingly speedy chips and setting up shop in places with cheap power. That’s helped them squeeze out smaller players as prices fall to the $6,000 level.

“There are still major expansions happening, especially from more efficient miners,” Marco Streng, chief executive officer of Genesis Mining, said by phone from London. “The expansion is so big that it compensated for the drop-out of not-so-efficient miners.”

New Bitcoins are created when computers compete to process transactions by solving complex puzzles in exchange for tokens. As mining power increases, the calculations needed to generate new digital coins become harder -- a mechanism designed to limit supply and dominance in the hands of few miners.

The race to get ahead with top-notch technology has intensified so much that miners became key customers for semiconductor giants such as Nvidia Corp. and Taiwan Semiconductor Manufacturing Co. And because of such advantages, the business became increasingly institutionalized and concentrated in the hands of companies like Bitmain or Bitfury.

Read more: Bitcoin Miners Facing Shakeout as Profitability Wanes

While faster gains in the hash rate have coincided with price rallies in the past, the relationship between the two isn’t so straightforward. Theoretically, a climbing hash rate should lift the price because it means the cost of each token is higher. But computing power may be rising now because of past expansions in capacity, which are a sunk cost to miners and reflect higher prices earlier. It’s also possible that miners will sell more of their holdings as margins get squeezed.

“The increased hash rate means people are here for the long-term because they’re happy to just accumulate what they have, potentially even run at a loss,” said David Sapper, chief operating officer at cryptocurrency exchange Blockbid Pty Ltd. in Melbourne. At the same time, “they do sometimes have to clear house and dump.”


Various analysts have have tried to calculate the break-even price for miners, which may offer support for prices. Bullish research firm Fundstrat Global Advisors has estimated $8,000. Morgan Stanley has said that large mining farms make money only with Bitcoin trading above $8,600, according to a CNBC report. Researchers at CoinShares, which offers cryptocurrency investment products, estimated in a May report the average marginal cost of a Bitcoin is $6,400. The digital currency traded at about $6,500 on Friday.

The number varies depending on the miner’s efficiency. Genesis Mining, for instance, is still expanding capacity, Streng said. Miners that also manufacture equipment have the benefit of immediate and cheaper access to their hardware and can adjust prices of their products to maximize profits, according to the CoinShares report.

Read more: Crypto’s Millennial Mining Tycoon Is Said to Plan $3 Billion IPO

Yet it’s clear the heydey of cryptocurrency mining is over for now. Genesis Mining said Thursday it will terminate contracts that are mining too little to cover the daily maintenance fee. Semiconductor companies are also seeing a slowdown in demand from miners. Increasingly, cryptocurrency mining seems dominated by large, competitive companies.

“The efficiency of the hardware is rapidly increasing and costs are coming down,” the CoinShares researchers Christopher Bendiksen and Samuel Gibbons wrote. “Miners are securing access to highly competitive sources of electricity, often ones that would otherwise lie idle, and show high degrees of mobility.”

— With assistance by Todd White


https://www.bloomberg.com/news/articles/2018-08-16/with-bitcoin-sinking-cryptocurrency-miners-just-dig-deeper

bitcoin mining gives good margins mainly to professional companies who are able to purchase the miners in bulk and save also expenses on the equipment and energies, simple as that

[davis196]

So bitcoin mining becomes unprofitable,if the price does under 6400 USD?
I guess that's why the current bitcoin price gets a really strong support at 6000 USD.Perhaps the miners use their last year profits to buy some bitcoins,in order to stabilize the bitcoin market demand.

[Quickharmas]

Mining of 1 Bitcoin costs $6000 on average so going below that price will be hard to achieve.

[stompix]

So bitcoin mining becomes unprofitable,if the price does under 6400 USD?
I guess that's why the current bitcoin price gets a really strong support at 6000 USD.Perhaps the miners use their last year profits to buy some bitcoins,in order to stabilize the bitcoin market demand.

No, it doesn't
In my case, it would have to drop below 3500 (to make mining not profitable).
And I'm not living in a country with extremely cheap energy (eastern europe/ not russia

The only problem is with the ROI, but right now even if you mine with a first generation S9 at 10cents/kwh it's still profitable. And the new T2 if far more energy efficient it still pays at 12 cents/kwh.
At 6 you can expect to ROI even if you buy it now.

But lots of miners bought their gear a long time ago, for them it's just running costs versus revenue.
Most guys would keep mining probably even at 2000, and this forgetting that if the price drops some miners will be put out of the game, thus reducing the difficulty, making it more profitable for the ones left....and so on.

 

[1Referee]

Profitability isn't really an issue at current levels.

The insane OTC demand for virgin coins has increased to such degree, that miners aren't selling their coins for $6000 but $8000 and upwards. It's nearly impossible to buy mint as individual, unless you want to pay the insane premiums, but not everyone can afford that, especially with how the minimum is calculated per block instead of individual coins.

Professional parties aren't really keen on buying already circulated coins with how they still haven't completely dealt with their 'Bitcoin is being used by criminals' syndrome.

[retampan]

Mining of 1 Bitcoin costs $6000 on average so going below that price will be hard to achieve.

That's why I really hate mining bitcoin since it costs a lot and the difficulty to mine bitcoin is just getting ridiculous in daily period.

[cellard]

Bitmain, Halong Mining and the biggest innovators in the game, are most likely using gear on their secret mining operations that is unreleased, we can't really know what their ROI is, they are dealing with machines we don't know. Im sure that what they release is months old, so once they have done milking that advancement in technology, they release it to the masses, not before. So by the time Antminer releases S9, there is S10 running secretly on their facilities, they can keep growing. This is my theory. They also think long term and just keep mining knowing that the coins will go up in value. I know miners must meet expenses and sell some monthly to pay electricity but any miner with a brain must have an hedge fund in which they store BTC.

It's nice to see the hashrate growing no matter if the USd valuation goes lower in any case.

[BitcoinNewbie15]

Profitability isn't really an issue at current levels.

The insane OTC demand for virgin coins has increased to such degree, that miners aren't selling their coins for $6000 but $8000 and upwards. It's nearly impossible to buy mint as individual, unless you want to pay the insane premiums, but not everyone can afford that, especially with how the minimum is calculated per block instead of individual coins.

Wow, I have never heard of this before. There are people that will pay a premium to buy newly minted Bitcoin? Why is this? Is it because there is no lineage for the coins? Is it a psychological thing, knowing that you are the only one to have held those coins? Or is because like you said, they want to make sure it hasn't been used for illegal activity? This is new to me. Miners are making even more of a killing than what I have thought. I had no clue that newly minted coins could be sold at a premium.

[dothebeats]

I've read somewhere in the past that the lower the price of bitcoin goes, the lower the price of ASICs will be, so I guess it might be a good reason as to why miners keep on expanding farms when bitcoin and other crypto keep on hitting their lows. You can also factor in the growing difficulty together with the waning profitability, and as such, in order to gain more profit, one must need to expand and outdo others on this quest for magic internet money. Also, miners think that a similar rise like that of $19k could possibly happen again, and stocking bitcoins as early as now is another thing they can do for maximum profit.

[eternalgloom]

So bitcoin mining becomes unprofitable,if the price does under 6400 USD?
I guess that's why the current bitcoin price gets a really strong support at 6000 USD.Perhaps the miners use their last year profits to buy some bitcoins,in order to stabilize the bitcoin market demand.

Read again, your numbers are incorrect.

Various analysts have have tried to calculate the break-even price for miners, which may offer support for prices. Bullish research firm Fundstrat Global Advisors has estimated $8,000. Morgan Stanley has said that large mining farms make money only with Bitcoin trading above $8,600, according to a CNBC report. Researchers at CoinShares, which offers cryptocurrency investment products, estimated in a May report the average marginal cost of a Bitcoin is $6,400. The digital currency traded at about $6,500 on Friday.

Aren't those numbers way too generalized? I can't imagine that they all have similar fixed costs to run their farms?

[crypto mania]

Bitmain, Halong Mining and the biggest innovators in the game, are most likely using gear on their secret mining operations that is unreleased, we can't really know what their ROI is, they are dealing with machines we don't know. Im sure that what they release is months old, so once they have done milking that advancement in technology, they release it to the masses, not before. So by the time Antminer releases S9, there is S10 running secretly on their facilities, they can keep growing. This is my theory. They also think long term and just keep mining knowing that the coins will go up in value. I know miners must meet expenses and sell some monthly to pay electricity but any miner with a brain must have an hedge fund in which they store BTC.

It's nice to see the hashrate growing no matter if the USd valuation goes lower in any case.

Of course, they have already in place faster and better miners for their own use and research. We can not forget that they mined years long with the backdoor advantage they created. We can never know for sure if they don't use any other upgrades right now.

[Pursuer]

it is funny how bullshit articles of Bloomberg are most of the times about bitcoin. and the funnier part is how people keep posting them on this forum thinking they are posting some valuable information. of course OP is just copy pasting obviously not caring what the content is!

in any case it is easy to see how bullshit this particular article is if you simply take a look at the hashrate charts and see how it has been rising all this time despite the price drop and all the nonsense they are posting about it. which shows that number of miners is actually growing, so it must be profitable for them to grow!

[ralle14]

Mining of 1 Bitcoin costs $6000 on average so going below that price will be hard to achieve.

That's why I really hate mining bitcoin since it costs a lot and the difficulty to mine bitcoin is just getting ridiculous in daily period.

Mining Bitcoin doesn't cost a lot however if you want to profit you need a lot of money. Mining a whole piece of Bitcoin could cost more than $6000 depending on the time, which miner you're using and the electricity costs is different from each country. The increased difficulty is actually good imo as it balances out the price of Bitcoin in some way.

[Ilegendph]

it is funny how bullshit articles of Bloomberg are most of the times about bitcoin. and the funnier part is how people keep posting them on this forum thinking they are posting some valuable information. of course OP is just copy pasting obviously not caring what the content is!

in any case it is easy to see how bullshit this particular article is if you simply take a look at the hashrate charts and see how it has been rising all this time despite the price drop and all the nonsense they are posting about it. which shows that number of miners is actually growing, so it must be profitable for them to grow!

An increase in number of miners that will share a transaction fee will decrease their profit. Imagine if you have something as a whole and the number of dividends is increasing. Ofcourse, you will get a lower share per dividend and the same is true for bitcoin. However since the real issue here is the value of bitcoin in dollars, the value of share per dividend will also decrease leaving the miners on loss because they need to pay for electricity and internet just to mine bitcoin.

[HerbalCommunication035]

It is right that bitcoin miners is not running through a very miserable condition but this situation will not stay longer and day will change very soon.

[Pursuer]

it is funny how bullshit articles of Bloomberg are most of the times about bitcoin. and the funnier part is how people keep posting them on this forum thinking they are posting some valuable information. of course OP is just copy pasting obviously not caring what the content is!

in any case it is easy to see how bullshit this particular article is if you simply take a look at the hashrate charts and see how it has been rising all this time despite the price drop and all the nonsense they are posting about it. which shows that number of miners is actually growing, so it must be profitable for them to grow!

An increase in number of miners that will share a transaction fee will decrease their profit. Imagine if you have something as a whole and the number of dividends is increasing. Ofcourse, you will get a lower share per dividend and the same is true for bitcoin. However since the real issue here is the value of bitcoin in dollars, the value of share per dividend will also decrease leaving the miners on loss because they need to pay for electricity and internet just to mine bitcoin.

you missed the whole point, read my comment again. it is a matter of "IF".

IF miners were losing profit then more miners wouldn't have joined the party, in fact in case of a loss the hash rate should have gone down instead of up. the increase proves that it IS profitable and even when more miners come in and the profit each of them gain reduces, it still remains profitable.

[Haunebu]

I've read somewhere in the past that the lower the price of bitcoin goes, the lower the price of ASICs will be, so I guess it might be a good reason as to why miners keep on expanding farms when bitcoin and other crypto keep on hitting their lows. You can also factor in the growing difficulty together with the waning profitability, and as such, in order to gain more profit, one must need to expand and outdo others on this quest for magic internet money. Also, miners think that a similar rise like that of $19k could possibly happen again, and stocking bitcoins as early as now is another thing they can do for maximum profit.

I agree. I know some people who have been mining from a long time now and they always focus on the long term rather than worrying about the short term stuff which is something I found surprising since I expected miners to behave like bounty hunters in this aspect who would usually sell their coins asap in order to acquire back their initial investment and profit as soon as possible.

A big portion of Bitcoins have already been mined leading many to believe that Bitcoin value will only continue to rise in the future due to the supply and demand logic.