The going may be tough for miners in the near future, but those who stick it out will be rewarded with cheaper mining hardware.
This week was marked by a surge in hash rates to an all-time high. However, this increase in mining machines also led to a new record difficulty level. As a result of these market conditions, hash price fell significantly, putting even more pressure on already slim profit margins. Nevertheless, equipment prices are currently very low as well.
Bitcoin Price Plateau
For the past few weeks, Bitcoin’s price has fluctuated between $18,500 and $20,000 without moving significantly higher than the 50-day moving average. If it falls below $18,000, that would be indicative of worse things to come for cryptocurrency investors. However, even during this period when the prices aren’t changing much day-to-day, the hash rate (a measure of how much computing power is being used to mine Bitcoins) continues to increase steadily.
In other words, since miners are confident the Bitcoin price will rebound and they’re still willing to operate at a loss, for now, it’s unlikely the price will drop below $18,000 anytime soon – unless there’s a sudden increase in selling pressure.
Are We Looking at Another Capitulation Phase?
The hashprice is a key metric for the health of the Bitcoin network. It represents the total computational power being devoted to mining new blocks. The hashprice has declined since early 2018, and hit an all-time low in December of that year. The decreasing value of the cryptocurrency has forced miners to abandon their projects, leading to a decline in the hashrate.
Network Hashrate Continues to Increase
The network hashrate, which determines how much mining is taking place on the Bitcoin network at any given time, has been steadily increasing for the past few weeks and reached a new all-time high this week.
This is most likely due to a combination of factors, including the expansion of big miners’ operations and the deployment of newer, more efficient ASIC machines. Most unprofitable mining operations went offline during what’s known as the “capitulation phase” in early summer 2020 when BTC prices were low, leaving only those with lower electricity costs or access to cheaper sources of hashing power operational.
While a sudden drop in Bitcoin’s price could impede the hashrate growth, if prices remain stable, we can expect the hash rate to continue climbing before year’s end.
Pressures Decrease Profit Margins
With Bitcoin’s hash rate currently sitting at $27,58/TH, the pressure is on for mid-gen ASIC miners. Electricity rates have become more competitive than ever, making it crucial to find a location with low mining costs. Many of the old- and mid-generation models were sold off earlier this year when prices dived, and now new-generation models are following suit.
By mining with a competitive electricity rate, miners can increase their hashrate without spending too much on electricity. This will help to keep them profitable in the long run.
The margins for mid-gen ASICs are under pressure. Miners who remain in business are now seeking competitive electricity rates to improve their profits. The low demand has also led to old and mid-gen models being sold at discount prices earlier this year.
ASIC prices have fallen along with demand for new mining hardware, making it difficult for miners to make a profit. We could see more miners give up in the next few months as a result. If the hashrate falls and ASIC prices stay low, we might go through another capitulation stage soon.
Miners will sell their extra machines before taking them out of service, meaning that there is a potential for an influx of new machines on the market. In addition, funds have been raised to buy mining companies that are struggling–meaning that these rigs might not be shut down after all but simply change hands. With hash price already struggling to find support at $7000, this news could mean even further downward pressure on prices.