Cryptocurrency Mining Hardware Businesses Feel The Affects Of Bitcoin’s Slumping Value
2018 has been a rough year for the altcoin sector so far, but it now appears as though the prevailing bearish conditions have also had a negative impact on the overall profitability of various cryptocurrency mining ventures. However, despite all of the negative pressure, it is being reported that Bitcoin miners were able to draw profits in excess of $4.7 Billion through the first half of the year.
Another reason for various mining operations losing money is the “growing competition” between big pools as well as the increasing complexity of Bitcoin’s native algorithm (which invariably tips the scales away from smaller players).
A Brief History of the Crypto Mining Space
As some of our readers may remember, just 12 months back, the mining hardware market looked quite different (especially since mining enthusiasts had procured a total of 3 million devices for a combined sum of around $700 million). In this regard, it was reported that back then Bitmain held most of the market share, followed by other big-name players such as Nvidia and AMD.
The drastic increase in the sale of GPU cards which was witnessed last year can primarily be attributed to a growing demand for such devices from Ethereum miners. As a result of this increasing interest, the mining sector then started to move towards custom ASICs— thus resulting in a surplus of mining graphics cards.
Lastly, it is also worth mentioning that during the aforementioned price boom, graphic cards such as Nvidia’s GeForce 1080 sold for as much as $1,000 per unit.
The State of Crypto Through 2018
Ever since Bitcoin lost more than half its value during the early part of 2018, a host of different GPU manufacturers came forth and announced that they had witnessed a substantial dip in their annual profits.
To further elaborate on this point, we can see that in April, AMD’s OEM 4GB RX 580 was being sold for around $3,600. However, just 4 months later, the device was available in the market for a reduced price of $2,500. The same can be said for Nvidia’s GeForce GTX 1080 Founders Edition, which was initially being sold for $1,050 (but a few weeks into July, its price came down to around the $700 mark).
Only Big Mining Pools are Making Money
Even with the global crypto market falling quite substantially through the first 3 quarters of 2018, Bitcoin miners' were able to source profits in excess of $4.7 Billion (along with a monthly profit of 57,000 BTC) during the aforementioned time period.
To put things into perspective, we need to understand that during 2017 (the year when crypto really took off), miners were only able to rake in profits of less than $1.4 billion. However, with ever increasing competition, mining incentives are reducing with each passing day (especially for smaller players).
In this regard, a study released by Diar earlier this year pointed out that:
“With big mining operations on low electricity costs running at anywhere between 50-60 percent gross profit from Bitcoin revenues, the market has a lot of room left to grow and, profits to squeeze. But Bitcoin mining has, at least for now, and most likely in the future, moved into the court of bigger players with deep pockets.”
Barclay James: “Bitcoin Mining is Currently Not Profitable”
Another piece of data that might be interesting to our readers is that since September, Bitcoin mining has largely been an unprofitable venture. This, atleast, is the view of Barclay James, a respected crypto analyst, who recently came up with a special formula to find the price at which miners can no longer generate a profit when sourcing Bitcoin digitally. As per the formula, the range below which BTC mining is no longer fruitful is $6,400-6,500 per coin.
Why Did AMD and Nvidia Suffer Such Massive Losses?
Apart from the declining interest from miners towards conventional graphic cards, another study published recently indicates that the sales figures observed between April–June were higher than those of last quarter’s (thus pointing to a ‘seasonal buying factor’ as well).
Since Q2 2018, the sale of graphic card units for various companies have decreased as follows:
- 1% decline in sales for AMD
- 7.5 percent decline for NVidia
- 2.6 percent decline for Intel.
On the matter, Kin Ngai Chan, an analyst for Summit Insights, told a respected media outlet that
“AMD had too high an exposure to the crypto-currency market, meaning that miner's acquisitions have significantly increased the company's revenues.”
Even though mining only represents a fraction of AMD’s annual revenue, company CEO, Lisa Su, announced earlier this month that her firm was partnering with 7 major tech players so as to produce new mining rigs that will deliver functional utility as well as other key features such as:
- A high degree of operational stability
- Round the clock performance
- Enterprise-level quality
BitMex Continues to Dominate
Amidst companies like AMD, Nvidia reporting annual loses in regards to their crypto operations, it has been found that Bitmain has been selling its latest Bitcoin ASIC Antminer S9 at a discounted rate so as to continually lure in more customers to this domain.
As per statistical data, through the first quarter of 2018, Bitmain was able to sell around 2 million of its Antminer units.
In this regard, Samson Mow, a respected crypto analyst was noted as saying:
“These low prices are likely to be a deliberate strategy by Bitmain, to squeeze out their competition by causing them to experience lower sales and therefore financial difficulties. In our view, herein lies the key to one of the main driving forces behind the decision to IPO. A successful IPO may increase the firepower available to continue this strategy and eliminate an advantage rivals could have by doing their IPOs first.”
More on the Matter
As mentioned earlier, if certain market research and studies are to be believed, Bitcoin miners have not been making money since June of this year. However, irrespective of everything, due to the growing hash power of BTC, it seems as though this market segment will continue to remain lucrative for those entities that are able to keep their mining operations going at an industrial scale.
Whether or not the crypto mining industry will continue to flourish as before is anyone’s best guess. However, one thing is for sure that this niche’ market segment continues to draw in more and more people with each passing day.