Volatility has completely taken over bitcoin at . However, it is not only investors who are in a critical situation: the collapse of cryptocurrencies has also put miners between a rock and a hard place. Many of them have found that the high investment made in equipment to extract cryptocurrencies only offers them losses.
Cryptocurrency mining is the process by which anyone who wants can process transactions made by users in blocks in exchange for a reward in the cryptocurrency itself. Every 10 minutes, a number of newly minted bitcoins (currently 6.50) are raffled among all the people who are mining at the time. These miners are the basis on which the entire structure of the main cryptocurrencies in the world is maintained and there are those who think that they could be in serious danger.
In January 2022, the analysis of the digital asset firm BitOoda stated that miners with older machinery would cease to be profitable when bitcoin reached $36,700 (23% of all miners) and that practically all would be threatened with a price close to 20,000 dollars for bitcoin. This weekend dollars and is currently just over 21,000.
The risk is clear: with skyrocketing energy costs, it is much more expensive for all these companies and users to mine cryptocurrencies, which requires having large numbers of purpose-built computers working non-stop for weeks on end. Before the crash, the entire system was consuming more than 200 TW/h per year, the equivalent of adding an extra Thailand to planet Earth. With the crisis, consumption has fallen to 130 TW/h, the equivalent of a second Argentina.
The reason for this sharp drop in the ‘production’ of bitcoins is that the enormous increase in the cost of electricity has been compounded by a sharp drop in their income: the reward they receive for this activity has plummeted critically as the value of the coins they get in return. Depending on the youth and the efficiency of the devices they use, the key figure in which they start losing money is already on the verge of breaking, or has recently broken in the midst of the collapse of these weeks. Those affected can do little, beyond closing their less efficient devices.
Proof of this crisis is the CleanSpark mining company, since so far this year it has dropped 51% (64% from maximum) in its stock price. Marathon Digital Holding is worse off, down 80% this year. Other companies such as Bitfarms or Ht 8 Mining have left 73% and 78% respectively.
The other big problem is that many of these miners have not sold their coins for a long time. Like most investors, the miners trusted that the price of bitcoin would continue to rise indefinitely, so they avoided selling the ‘tokens’ they received for their efforts, waiting for higher profits. However, the operating costs – electricity, salaries – required income in dollars. The solution was to borrow from ‘crypto’ financial firms with their bitcoins as collateral.
The problem of the miners who had opted for this solution is now twofold. For one thing, they have to sell their bitcoins at a time of weakness to cover loans, even though, depending on the type of mining device they use, they may be selling at a loss. And second, at a time of panic in the market, in which there is a lack of buyers, putting up for sale hundreds of thousands of bitcoins that were kept aside until now only pushes the price down.
In total, miners put up for sale about 195,663 bitcoins in May, the highest number since January, according to Coin Metrics data collected by Compass Mining, despite the crisis that mining is going through due to the ‘perfect storm’ between crypto prices. and electricity.
Alberto Fernández: “The companies in which Bitcoin is mined more efficiently have a good boost due to the elimination of competition”
Miguel Caballero, CEO and co-founder of Tutellus, defends that this maximum, despite the situation, comes because the miners see “a short-term growth potential in the value of cryptocurrencies” and that, due to this, they have decided not to disconnect their machines. .
Alberto Fernández, professor of the Specialized Program in Blockchain and Digital Innovation of the IEB, defends that, despite everything, “the profitability of Bitcoin miners is affected” but believes that “companies in which Bitcoin is mined more efficient” have a good boost “by the elimination of competition, and therefore a greater distribution of total production. For example, companies with access to energy at low cost or even at close to zero cost such as biogas mines” may be surviving and even improving their situation.
Alberto Gordo, CIO & partner of Protein Capital explains that “Bitcoin (BTC) mining platforms that have less efficient mining equipment (ASIC) have difficulties in being able to cover their costs with lower income.” That is why “only those companies that have the most efficient ASICs will be those companies that survive” the current situation”. Some are even talking about selling their bitcoins to renew their devices for more efficient ones. The problem is that this business depends on that the reigning cryptocurrency does not continue to fall, and that is something that no one can guarantee at this point.
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