The recent decline in market prices for Bitcoin has taken a toll on miners, who have seen their profits slashed. According to data from BitInfoCharts, the average daily revenue for a Bitcoin miner has declined from around $13,000 at the beginning of 2018 to just $4,000 by mid-November. This sharp drop in income has forced many miners to abandon their operations, resulting in a significant loss of hash power.
As the market price of Bitcoin falls, so does the mining profitability. This is due to the fact that mining costs remain fixed even as the price of Bitcoin declines. For example, a miner with an Antminer S9 (one of the most popular and efficient miners available) would be losing money if the price of Bitcoin fell below $6,875.
Meanwhile, Texas-based crypto mining centers are feeling the pain as well. Old crypto mining rigs are being dumped by the kilowatt as miners look to cut their losses. One of the centers, which had once been home to approximately 5,000 rigs, now only has a few hundred of them. The center said they’ve seen a 75% drop in business since the market crash in January.
The recurring price decline of cryptocurrency is likely due to a combination of factors, including the entry of new miners undeterred by the current market conditions and the continued use of older, less efficient mining rigs. In the words of Blockstream CSO Samson Mow, the hash rate will have to drop by 30% for miners to start feeling any real pain.
In addition to the evident inefficiencies of outdated mining rigs, the regulations stipulated by the Electric Reliability Council of Texas (ERCOT) have also played a role in the decline of Texas-based mining operations. The Council’s rules require cryptocurrency miners to provide proof of operation to qualify for lower energy rates. As many Bitcoin miners and other potential investors are now finding it unprofitable to operate, they are unable to meet these requirements and are forced to pay higher rates.
Due to current market conditions, some miners are taking courses of action to cope with the losses. Riot Blockchain Inc., a U.S.-based Bitcoin mining company, has announced that it will sell its coins as soon as they are mined to minimize losses.
Matthew Kimmell, a certified CoinShares analyst, stated that the ongoing decline is just a market correction and that the shakeout phase is necessary for the bull run that is to come. He further asserted that the cryptocurrency industry is still in its early days, and it would be foolish to think there will be no more market corrections in the future.
Even though the current market conditions are less than ideal, there is still a lot of optimism surrounding Bitcoin and other cryptocurrencies for the long term. While it is true that the industry is facing difficulties, it is essential to remember that the crypto space is still in its early stages and these sorts of setbacks are to be expected.
As the technology improves and becomes more widely adopted, the market will likely see more stability in the near future. Until then, investors and miners alike must be prepared for further corrections.
Klug Counsel PLLC and its team of crypto lawyers have represented multiple domestic and cross-border crypto funds and crypto mining ventures in providing tax-efficient structuring that involved equipment worth hundreds of millions of dollars.