A phase when there’s a flushing out of the market
ONE OF THE consequences of the recent rout in Bitcoin is well under way. And it’s likely to have a profound effect on the leading cryptocurrency.
There is a consolidation going on among the so-called miners that perform the complex calculations to generate the digital currency after the plunge rendered many of them unprofitable.
At least 100 000 individual miners have shut down, according to Autonomous Research. Fundstrat Global Advisors estimates that about 1.4 million servers have been unplugged since early September.
“We are entering in the phase when there’s a flushing out of the market,” said Malachi Salcido, head of Wenatchee, Washington-based Salcido Enterprises, which claims to be one of the largest miners in North America, with 22MW of power deployed and 20MW more being built.
“There will be relatively few operations that come out the other side.” Most miners are only profitable when Bitcoin trades above $4 500 (R61 636). It hasn’t closed above that level since November 19.
Late last year, Bitcoin traded for almost $20 000.
Only a select few can afford to stay in the game: miners with scale, very specific business models and extremely low electricity costs, as in Douglas County, Washington, where most of Salcido’s operations are based. Margins before costs like depreciation and taxes dropped from about 40 to 20 percent during the slide, Salcido said.
They jumped back up at the company to around 40 percent as smaller rivals shuttered operations, he said.
With the so-called hash rate – or mining power on the Bitcoin network – down 36 percent from its all-time peak this August, problemsolving difficulty has dropped about 10 percent, making it easier for the remaining mining rigs to earn Bitcoins. |