Bitcoin miners are getting burnt by competition and low prices

Posted: 16 March 2018 5:07 pm
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Current prices see miners barely breaking even, but they are far from finished according to Fundstrat analysis.

There are probably a lot of unhappy bitcoin miners in the bitcoin mines these days, CNBC reports.

According to Fundstrat analysis, the per coin mining cost, of about $8,000 factoring in equipment and operation costs, is barely below the value of bitcoin, and some miners are almost certainly going at a loss or switching off their machines until it perks back up.

Bitcoin mining is set up in such a way that the more competition (hashing power) there is, the harder it is to mine new coins. These days it's so competitive that miners can only compete with expensive and specialised ASIC mining cards, designed specifically for bitcoin, and it's centralised down to a handful of large mining operations and mining pools.

Who's getting burnt?

Someone, that's for sure.

According to the Fundstrat analysis, miner earnings have almost halved between December highs and now, thanks to increased mining competition. At the same time, they're getting buffered by a dropping bitcoin price and very low fees.

That mining competition has increased despite the adverse circumstances, suggests that people are making big investments that might not pay off.

Bitcoin mining gear doesn't come cheap, and to make matters worse it has to be specially made for bitcoin these days. The ASIC processors used for mining have been specifically geared for bitcoin, so it's not easy to simply switch to a more profitable coin the way miners used to.

"For traditional commodities such as gold, when it equals its cost of production, some speculators take that as a clue it may be near a bottom as supply eases," CNBC says. "But bitcoin may be more complex because the cost to mine it still varies widely around the world due to differing electricity costs.

Outside the data models and in the real world, the mood among miners might be strained, but still rosier than breaking even would suggest. Fundstrat's model assumes electricity costs of 6c per kilowatt hour, but commonly held bitcoin wisdom is for miners to aim for 4c per kilowatt hour in order to compete with China's mines, which make up the bulk of production.

According to Fundstrat's head of quantitative data science, Sam Doctor, miners wouldn't actually start packing it in until bitcoin dropped to around $3,000 or $4,000. And even then, many would chug along at a loss for as long as possible to outlast the competition and see a return to a more profitable mining economy.

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, SALT, BTC, NANO

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