The consequences of the biggest cryptocurrency losing more than 80% of its value in less than a year are proving to be much bigger than initially anticipated.
Bloomberg reports that at least 100,000 individual miners have shut down, while around 1.4 million servers have been unplugged since early September.
A consolidation among the bitcoin miners is underway as many are taken out of the business due to the low price of Bitcoin. Apparently, the “profit” price threshold for bitcoin miners is around $4,500, hence a move below this level means the mining business becomes unprofitable.
It has now been 15 days since Bitcoin last closed above that level (Picture 1).
Picture 1. Bitcoin price in the context of mining (Source: Bloomberg)
The Bloomberg story mentions Salcido Enterprises, one of the largest miners in the United States with 22 megawatts of power deployed and almost as much as that being built.
“We are entering the phase when there’s a flushing out of the market,” said Malachi Salcido, CEO of Salcido Enterprises. “There will be relatively few operations that come out the other side.”
Margins before costs, like depreciation and taxes, dropped from about 40 percent to 20 percent during the slide, Salcido said. They jumped back up at the company to around 40 percent as smaller rivals shuttered operations’, Salcido adds.
According to Blockchain.com, the hash rate, Bitcoin network mining power, has fallen to less than 32 th/s (trillions of hashes per second), for the first time since July. In August, it peaked at 61.9.
Deteriorating business conditions means that only the fittest can survive the recent turmoil, one through which the cryptocurrency market has been going through. One of the most important categories in the bitcoin mining business is low electricity costs, which is the exact reason Salcido built their operations in Douglas County, Washington.
Salcido is paying about 3 cents per kilowatt-hour, which is apparently half of what miners pay in China.
For that exact reason, Bitmain Technology., one of the industry’s biggest miners based in China, opened a 30,000-unit facility with 12 megawatts of mining power. Location? East Wenatchee, Washington.
Salcido finally predicts the market to reverse in the early months of 2019, but it could get worse before that.
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“Like all market bottoms, smart money is watching for the turn, that doesn’t happen usually quickly”, concludes Salcido.