Will 2020 Bring a Profit to Cryptocurrency Miners?
- The halving of the Bitcoin mining reward is expected to take place in May 2020.
- The profitability of the mining process directly correlates to the cost of profitability.
Miners are a critical and essential component of the cryptocurrency industry, especially Bitcoin. The validation of each block on the blockchain relies on these individuals performing their work to solve equations, and they’ve been rewarded from the start of the industry. However, Bitcoin has an algorithm in the network that reduces the reward of miners every four years or so, as the supply of Bitcoin is limited and unchanging.
The first time that the value of Bitcoin’s mining efforts was cut in half – a process that has simply come to be known as the halving or the halvening – was on November 28th, 2012, and the price of Bitcoin was just $12.50. The next event was on July 9, 2016, when the price was $650. The next halving of the reward is expected to happen in May 2020, and there’s already been a lot of discussion over the upcoming value.
Since the last halving, there have been many institutional investors who have entered the market, which makes the halving quite interesting. This will be the third time that the halving has taken place, which will hopefully provide consumers with a confirmation of the correlation between this reward event and the price increases of Bitcoin. However, it may simply show that the halving and the price increases are just a coincidence for each other.
Miners, with this upcoming halving, will see their reward dropped from 12.5 BTC to 6.25 BTC for every block that they mine. As the halving happens, there will be 50% less Bitcoins generated every 10 minutes, which will impact how the new Bitcoins are brought into circulation. The new profitability of these miners will be a topic of discussion at the upcoming World Digital Mining Summit, which is to be held in Frankfurt.
According to data from CoinDesk, there will be over 1,000 attendees at the event, made up of miners, mining farm owners, OTC traders, institutional investors, and blockchain organizations, among others. All of these different parties will have a chance to debate over the reward cut and the impact on mining profitability. Co-founder and former CEO of Bitmain, Jihan Wu, has expressed a pessimistic view about the possibility of a price surge at the halving.
Wu stated, “Maybe people speculate too much before the halving, and then you can’t sell the good news anymore. Maybe, this time a bullish cycle is not coming yet. During the first and second halving, people didn’t know what to expect, and during the second halving, the scaling debate complicated the situation. Now people are expecting it.”
At Ethereum Express, a crypto-community platform, there are analysts that believe that crypto mining will end up becoming profitable again next year. Overall, the global crypto mining market has grown 29.9%, according to researchers who evaluated the compound annual growth rate. In 2016, the market was worth $611 million, followed by a value of $8.9 billion this year. Next year, researchers believe that the market will reach $11.56 billion. By 2025, they are predicting a value of $42.76 billion.
Vlad Miller, the founder of Ethereum Express, was asked about the challenges that are facing the current miners and this profitability concern. He remarked, “Even though the mining industry is investment-attractive and plays an important role in maintaining the health of blockchains, there are still several barriers in this area that cause inconveniences for most ordinary users.” Still, he added that the main motivation for mining is the way it eliminates the possibility of a monopoly by companies that happen to own “massive data processing facilities,” which is why he thinks that profitability is coming back.
The computing power of hash rates have seemingly been left unaffected negatively by the sudden drop that Bitcoin recently faced on the 21st of November. Based on the analysis of hashrate data, allocation of this power actually reached an all-time high for the second time ever.
The halving of block rewards, as a whole, has been one of the important and planned events for miners, and it is likely to come with scrutiny over the profitability of this process. Researchers believe that it won’t be profitable for ASIC owners to mine anymore, especially considering that the CEO of Genesis Mining – Marco Streng – states that the company’s most popular ASIC model has reached its productivity limit. The Antminer S9 model, which is the design that Streng is referring to, is limited now, and he added that “a lot of miners are running on a margin of profit.”
Of all of the equipment presently on the market for mining, the S9 from Genesis Mining and the Avalon A851 series from Canaan Creative have been the most widely used. However, their profit margin is just 50% with the current price of Bitcoin, according to the F2Pool index. The lack of profit generation by the old equipment could push the industry to consolidate even more, if there’s any hope of maintaining profitability. The mining pools that lack the support will likely fade away, especially since these smaller miners only account for about 20% of the mining market for Bitcoin.
The chart below shows the infrastructures that aren’t bringing a profit, which could lead them to shut down their operations, unless their electricity costs are lower.
Still, there’s a chance that new mining equipment on the market – found in the chart below – could increase the profit margins, even with the BTC market unchanged. A more in-depth review of the security, insurance, maintenance costs, and other expenses for individual and small-scale miners will need to be performed to see if this equipment will allow them to be profitable as well.
While there are mining opportunities for tokens of many market capitalization amounts, the most popular mining currencies right now include:
- Bitcoin Cash
- Bitcoin Core
- Bitcoin Satoshi Vision
- Ethereum Classic
In a recent initial public offering (IPO), Canaan Creative managed to bring in $90 million. By all accounts, this would be a success, but it was actually 75% less than what the Bitcoin mining giant expected. Reports on November 20th by Bloomberg indicated that the firm sold off 10 million shares in their company at just $9 each with this IPO. Canaan Creative is actually the second-larges mining equipment manufacturer for Bitcoin in the whole world, even with negative cash flow since last year. In the first half of 2019 alone, the company recorded a $48.2 million net loss.
The speculation over the reduction in the IPO’s size appears to correlate with their loss of Credit Suisse’s support, which happened last week. The company was unable to get an IPO in Hong Kong in 2018, leading them to focus their fundraising on US investors. However, this sale took place just after the lost support.
Even with the failure of the IPO to meet Canaan’s predictions, the company still stands as the first crypto mining firm to host their own IPO. The results could be a sign that interest in cryptocurrency mining is starting to wind down in general, since Bitmain and Coinshares have also struggled to work with regulators and have had to postpone their own IPOs. Both Bitmain and Coinshares are direct competitors of Canaan.
Bitmain filed an application with the U.S. Securities and Exchange Commission for an IPO recently, though they were met with certain requirements that they must meet. While the projection over what Bitmain hopes to bring in through the US-based IPO has not been disclosed, the SEC has required three rounds of inquiries to take place, and the final of these three rounds will last for about two months. Bitmain had also tried to file an IPO in Hong Kong, like Canaan, for $3 billion.
CoinShares, based in the UK, has been considering the launch of an IPO with London’s stock exchange, but there’s been issues with the financial watchdog in the region. CryptoBriefing reports that the company is worried that a denial may be issued for the application, since retail investors could indirectly be exposed to digital assets with the CoinShares stocks.
The cost of profitability directly correlates with the answer to whether crypto mining is still profitable overall. The massive consolidation on the market appears to be the biggest threat to small and individual mining operations, but crowdsourced mining pools could ultimately start controlling more of the network, putting them in direct competition with bigger mining corporations.