The price fall of Bitcoin had a crushing effect in the entire crypto ecosystem. Established companies and start-ups alike are sustaining heavy losses, with some reducing staff and others going out of business. The mining sector, in particular, is struggling to make ends meet with current low volumes. Miners, manufacturers, web services, and mining pools are all operating at a loss. To make matters worse, the FUD created by the 80% loss of Bitcoins’ value turned mining into a contributor of climate change. The result is that crypto-averse governments are reducing energy access to mining farms. Thus, crypto mining is enduring hard times with only a glimmer of hope to carry it through.
The leading manufacturers, Bitmain and Nvidia are the most affected by the bear market due to their larger exposure. Both companies saw sales decline and both are facing litigation over crypto-related offenses. Bitmain allegedly uses clients’ newly purchased ASIC miners to mine cryptocurrency during their initial set up. And Nvidia’s complainants accuse the company of over estimating their crypto performance projections. Both instances cost investor’s money. The result of the crypto winter is that Nvidia reduced GPU miner production and Bitmain cut its staff by half. In addition, on December 30, GMO, a Japanese manufacturer announced it will end production if its B3 miners. Unfortunately, Cloud services are faring no better.
Virtual mining companies offer investors the opportunity to mine crypto currencies using the company’s equipment. The investor contracts with a company to lease computing (hashing) power at a fee and gets a share of the profits. This system allows investors to enter the mining market without purchasing mining equipment and incurring electricity costs. Genesis Mining, Hashnet, Hashflare, Hashing24 and others are examples of cloud mining companies.
Like manufacturers, all these companies had to adjust their business models to remain competitive. For example, in July 2018, Hashflare suspended SHA-256 mining contracts. And a month later, Genesis Mining ended open-end contract in favor of five year subscriptions. Both companies cited that high maintenance costs surpass payouts as the reason for the change.
Miners / Pools
The introduction of dedicated ASIC miners rendered individual mining unprofitable. Household mining was overtaken by scale production from mining companies, farms, and pools. To make a profit, individals must choose between a mining pool or cloud mining. However, even pools are running in the red; a quick calculation illustrates the problem.
According to Bitcoin.com’s calculator, miners contributing with an ASIC Antminer S9 with a 13 Ths/sec (Terrahash per second) can expect to make $2.19 per day. That’s $800 a year, minus the cost of electricity and hardware ($3,000). Now, using the same parameters for their cloud mining hosting for three months result in an operating loss of $245. That’s because the contract requires a $442 initial cost with a return of only $197 in 90 days.
Given these figures, miners are opting to temporarily shutdown their home miners or hedge their positions by shorting Bitcoin.
Despite the severe mining profitability decline, an optimistic sentiment prevails. Genesis Mining, the oldest (2013) and arguably leading cloud mining company continues to attract an influx of investors. Its contract packages continue to sell out due to the company’s trustworthiness and lower startup costs.
Also, AMD and Ebang are taking advantage of Bitmain and Nvidia’s downturn by “doubling down” investment in the crypto market. In ealry November 2018, AMD announced the launch of eight new crypto-specific GPU miners. Ther company is betting on long term success of the market.
The cheap prices of mining hardware now present an opportunity for the future. Despite the negative current situation, investment in mining now would pay handsomely in the future should the market turn again.