The Best Mining Rigs Are Now Barely Profitable -- Now What?

[Puppet]

Great discussion going on here, interesting to read.

Bitcoin mining is in a huge bubble right now. It's hard to get data to analyze that market, but how many $$$ have been injected in that market since 2012? Consider all the R&D, investments in mining business, and investments in ASIC manufacturers. I'm pretty sure the money injected in mining overshoot what the Bitcoin economy is able to support today.

Bitcoin mining can't go over what the Bitcoin economy is able to support. The better the Bitcoin economy is, the better it's network is going to be. Like any bubble, it usually ends with a crash. I think mining was temporarily saved by the Bitcoin bubble last November, but it can't grow like that eternally, not at that rate.

I'm pretty sure it's going to crash hard in the following months. The market has to correct itself, the sooner the better.

That doesnt make any sense. If people overinvested in mining, it isnt going to influence the exchange rate. Why would I sell my bitcoins lower because you (hypothetically) are out of a few tens of thousand dollars or dozens of bitcoins in unprofitable or undelivered mining gear? Getting screwed, whether its in BTC or fiat doesnt really influence btc rate. This is no different than when pirate's ponzi collapsed.

If there is an impact, it will be tiny, and probably work the other way. Those that bought these unprofitable miners may hoard their mined coins hoping to eventually break even if the price goes up. But considering how few coins are mined compared to how many are traded, its not going to make a big difference.

[samsonn25]

Great discussion going on here, interesting to read.

Bitcoin mining is in a huge bubble right now. It's hard to get data to analyze that market, but how many $$$ have been injected in that market since 2012? Consider all the R&D, investments in mining business, and investments in ASIC manufacturers. I'm pretty sure the money injected in mining overshoot what the Bitcoin economy is able to support today.

Bitcoin mining can't go over what the Bitcoin economy is able to support. The better the Bitcoin economy is, the better it's network is going to be. Like any bubble, it usually ends with a crash. I think mining was temporarily saved by the Bitcoin bubble last November, but it can't grow like that eternally, not at that rate.

I'm pretty sure it's going to crash hard in the following months. The market has to correct itself, the sooner the better.

That doesnt make any sense. If people overinvested in mining, it isnt going to influence the exchange rate. Why would I sell my bitcoins lower because you (hypothetically) are out of a few tens of thousand dollars or dozens of bitcoins in unprofitable or undelivered mining gear? Getting screwed, whether its in BTC or fiat doesnt really influence btc rate. This is no different than when pirate's ponzi collapsed.

If there is an impact, it will be tiny, and probably work the other way. Those that bought these unprofitable miners may hoard their mined coins hoping to eventually break even if the price goes up. But considering how few coins are mined compared to how many are traded, its not going to make a big difference.

This is correct, the price of btc has come a long way from .026 cents.

There is still strong demand as the price now is still higher than $85 last year.

[pjviitas]

Great discussion going on here, interesting to read.

Bitcoin mining is in a huge bubble right now. It's hard to get data to analyze that market, but how many $$$ have been injected in that market since 2012? Consider all the R&D, investments in mining business, and investments in ASIC manufacturers. I'm pretty sure the money injected in mining overshoot what the Bitcoin economy is able to support today.

Bitcoin mining can't go over what the Bitcoin economy is able to support. The better the Bitcoin economy is, the better it's network is going to be. Like any bubble, it usually ends with a crash. I think mining was temporarily saved by the Bitcoin bubble last November, but it can't grow like that eternally, not at that rate.

I'm pretty sure it's going to crash hard in the following months. The market has to correct itself, the sooner the better.

That doesnt make any sense. If people overinvested in mining, it isnt going to influence the exchange rate. Why would I sell my bitcoins lower because you (hypothetically) are out of a few tens of thousand dollars or dozens of bitcoins in unprofitable or undelivered mining gear? Getting screwed, whether its in BTC or fiat doesnt really influence btc rate. This is no different than when pirate's ponzi collapsed.

If there is an impact, it will be tiny, and probably work the other way. Those that bought these unprofitable miners may hoard their mined coins hoping to eventually break even if the price goes up. But considering how few coins are mined compared to how many are traded, its not going to make a big difference.

When mining centralizes sometime this year it will have an effect on BTC price since the consumer market for miners will be gone.  Consumer circulation of Bitcoin to buy hardware is actually a large segment of the Bitcoin economy.

Miner manufacturers will be forced to tighten the margins on their hardware because they will be dealing with buyers that are looking for 100's or 1000's of miners as opposed to buyers looking for 10's of miners.  Less profit again means less money being injected into the Bitcoin economy.

Once distributed mining becomes impossible this will generate a ton of FUD which again will affect the speculators.

So ya, centralized mining WILL have an effect on the price of Bitcoin...its just a matter of how much and for how long.

[Puppet]

When mining centralizes sometime this year it will have an effect on BTC price since the consumer market for miners will be gone.  Consumer circulation of Bitcoin to buy hardware is actually a large segment of the Bitcoin economy.

I doubt that. First of all, hardware manufacturers seem to instantly convert bitcoins to dollars, for obvious reasons (its not like TSMC accepts bitcoins). And do miners purchase coins to buy their gear with? Highly doubtful, since most hardware manufactures take dollars too, so I suspect almost all bitcoin purchases would be from existing stashes, so the net effect of mining hardware business, if any, is most likely that more bitcoins are being sold on exchanges, not the other way round.

As for what will happen once mining becomes a large enterprise thing; there is no way to know whether or not these companies will liquidate everything they mine, or assemble a bitcoin stash. My guess is most will do a bit of both, it doesnt seem likely you invest millions in a large mine if you do no believe in the long term prospects of bitcoin.

As for current small miners that will no longer be buying hardware; that could also mean they have more funds available to invest in bitcoins, something thats likely a better investment than mining gear anyway. Either way, the impact of mining on the BTC exchange rate is generally grossly overstated. There are nearly 13 million bitcoins. Each day, only ~3600 are mined. In two years, only half that.

[pjviitas]

When mining centralizes sometime this year it will have an effect on BTC price since the consumer market for miners will be gone.  Consumer circulation of Bitcoin to buy hardware is actually a large segment of the Bitcoin economy.

I doubt that. First of all, hardware manufacturers seem to instantly convert bitcoins to dollars, for obvious reasons (its not like TSMC accepts bitcoins). And do miners purchase coins to buy their gear with? Highly doubtful, since most hardware manufactures take dollars too, so I suspect almost all bitcoin purchases would be from existing stashes, so the net effect of mining hardware business, if any, is most likely that more bitcoins are being sold on exchanges, not the other way round.

As for what will happen once mining becomes a large enterprise thing; there is no way to know whether or not these companies will liquidate everything they mine, or assemble a bitcoin stash. My guess is most will do a bit of both, it doesnt seem likely you invest millions in a large mine if you do no believe in the long term prospects of bitcoin.

As for current small miners that will no longer be buying hardware; that could also mean they have more funds available to invest in bitcoins, something thats likely a better investment than mining gear anyway. Either way, the impact of mining on the BTC exchange rate is generally grossly overstated. There are nearly 13 million bitcoins. Each day, only ~3600 are mined. In two years, only half that.

Your assuming that BTC is a good investment...I think the jury is still out on that.

[samsonn25]

Btc price could easily go to 600 or 200.

[Brunic]

Great discussion going on here, interesting to read.

Bitcoin mining is in a huge bubble right now. It's hard to get data to analyze that market, but how many $$$ have been injected in that market since 2012? Consider all the R&D, investments in mining business, and investments in ASIC manufacturers. I'm pretty sure the money injected in mining overshoot what the Bitcoin economy is able to support today.

Bitcoin mining can't go over what the Bitcoin economy is able to support. The better the Bitcoin economy is, the better it's network is going to be. Like any bubble, it usually ends with a crash. I think mining was temporarily saved by the Bitcoin bubble last November, but it can't grow like that eternally, not at that rate.

I'm pretty sure it's going to crash hard in the following months. The market has to correct itself, the sooner the better.

That doesnt make any sense. If people overinvested in mining, it isnt going to influence the exchange rate. Why would I sell my bitcoins lower because you (hypothetically) are out of a few tens of thousand dollars or dozens of bitcoins in unprofitable or undelivered mining gear? Getting screwed, whether its in BTC or fiat doesnt really influence btc rate. This is no different than when pirate's ponzi collapsed.

If there is an impact, it will be tiny, and probably work the other way. Those that bought these unprofitable miners may hoard their mined coins hoping to eventually break even if the price goes up. But considering how few coins are mined compared to how many are traded, its not going to make a big difference.

No offense, but I think there is a miscommunication here. Maybe my first post wasn't clear.   

Bitcoin mining market and Bitcoin market are two different things. I think the Bitcoin mining market went on a bubble, too much money was entering the mining market compared to its actual value. The mining market cap is dependent on the Bitcoin market. You can't have a better infrastructure than your own economy.

It's the Bitcoin mining market that is going to crash, not the Bitcoin economy.

[Puppet]

It's the Bitcoin mining market that is going to crash, not the Bitcoin economy.

How do you define a crash of the mining market? If you mean that hashrate will implode, fat chance . IF you mean that mining hardware sales will dry up, well, think about the consequence of that. If indeed hardly anyone were to buy miners anymore, the one thing that will surely happen is that prices will plummet, considering most mining asics are still sold at the very least 10x above marginal production cost Clearly vendors would prefer to sell at 5x, 3x, 2x marginal cost over barely selling anything at all.  And if prices plummet, miners will buy again. Its this very mechanism, a spiral of death of exploding difficulty and plummeting prices that caused this, what you call bubble (and what I warned you against if you remember). Its not stopping anytime soon.

[Bitcoin++]

A crash will be in the sense that mining hardware drops in price dramatically.

This will in turn make it more attractive to invest in mining again, which will contribute to an even higher hash rate. But if the crash is severe enough producers of ASICs will be in trouble, maybe even go out of business.

If the price of bitcoin drops further, existing miners will turn off their gear, reducing the hash rate.

I guess the growth in hash rate will continue. New power efficient miners will be installed in locations with cheap electricity. This will in turn make most of existing miners go out of business long before ROI.

[davejh]

A crash will be in the sense that mining hardware drops in price dramatically.

This will in turn make it more attractive to invest in mining again, which will contribute to an even higher hash rate. But if the crash is severe enough producers of ASICs will be in trouble, maybe even go out of business.

If the price of bitcoin drops further, existing miners will turn off their gear, reducing the hash rate.

I guess the growth in hash rate will continue. New power efficient miners will be installed in locations with cheap electricity. This will in turn make most of existing miners go out of business long before ROI.

The problem is if the prices drop then more people will be enticed to buy but that pushes the hash rate up even further which in turn makes things not ROI so there will be another price drop. The limiting factor is when the ASIC vendors margins are squeezed to the point where they can't drop prices anymore, but the difficultly level changes will pretty much guarantee that that happens.

The same will be true for power costs - if mining using low-cost electricity offers a major advantage then any rational miner will move their equipment there or sell up. If they sell up then someone else can take up the slack using that lower-cost electricity instead. The same will also happen if anyone comes up with interesting ways to use waste heat (it's going to happen sometime :-)). Ultimately the difficultly level always wins.

After some of the earlier conversations in this thread I did a write-up to try to see if I could capture the essence of how this seems to play out: http://hashingit.com/14-prisoners-dilemmas.

[Puppet]

After some of the earlier conversations in this thread I did a write-up to try to see if I could capture the essence of how this seems to play out: http://hashingit.com/14-prisoners-dilemmas.

Not a bad article, although I dont quite follow you on the conclusion: "Ultimately it is unclear how the mining dilemma can end up having a happy ending for anyone but the energy suppliers". Pretty much all asic suppliers (that dont get sued in to bankruptcy or worse) will have their founders enjoying a happy ending sipping pina colada's on an exotic beach. Thats a happy ending in my book .

[davejh]

After some of the earlier conversations in this thread I did a write-up to try to see if I could capture the essence of how this seems to play out: http://hashingit.com/14-prisoners-dilemmas.

Not a bad article, although I dont quite follow you on the conclusion: "Ultimately it is unclear how the mining dilemma can end up having a happy ending for anyone but the energy suppliers". Pretty much all asic suppliers (that dont get sued in to bankruptcy or worse) will have their founders enjoying a happy ending sipping pina colada's on an exotic beach. Thats a happy ending in my book .

I like it

Updated the last line of the article and added an acknowledgement!

[socal]

I think as long as the price of bitcoins goes up people will continue to mine regardless of profit they will catch the "gold fever" and keep chasing profits long after the profits are gone

[bitcoin4eva]

Yes the difficulty rises all the time, but also better miners pop up all the time. I believe that mining will be profitable till the end of the world. If you can't efficiently mine BitCoins with your hardware, you can always mine altcoins.

[samsonn25]

Yes the difficulty rises all the time, but also better miners pop up all the time. I believe that mining will be profitable till the end of the world. If you can't efficiently mine BitCoins with your hardware, you can always mine altcoins.

Asic technology is at point where not exponential anymore.

Scrypt will be down the same road.  By end of year too difficult.   And remember scrypt ltc is tied to btc price as alot other altcoins.  Besides other alts is high risk also, not established to anything, hard to comvert to fiat, and even so will be high conversion fee