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Mining on the brink: how the drop in profitability has affected mining companies

The decline in bitcoin over the past few months has had a significant impact on the income of cryptocurrency miners. What measures Russian miners are forced to take and what is the near-term outlook.

Contents

  1. About zero
  2. Forced spending
  3. Miners will endure

The profitability of mining is sensitive to the movement of the bitcoin exchange rate.

According to Western research, the world’s mining giants sold 100 percent of the bitcoins they produced in May because of a sharp drop in revenue. By comparison, in the first four months of 2022, miners sold between 20% and 40% of their mined BTC.

Is mining cryptocurrency still a profitable business in Russia at a bitcoin price of $20 thousand? Representatives of mining companies told whether they are forced to sell mined coins to cover costs and whether to wait for mass shutdowns.

About zero

The rate is only one of the parameters that determine the profitability of mining: you also need to consider the cost of electricity and the complexity of the network, said co-founder of BitCluster Vitaly Borschenko.

According to the expert, mining will remain profitable even at a significantly lower rate for modern energy-efficient equipment with the cost of electricity of less than 4 rubles per kWh.

Co-founder of ENCRY Foundation Roman Nekrasov didn’t agree with him, he noticed that at the price of $20 thousand the profitability of mining enterprises is already close to the cost price (about $15-17 thousand) and in some cases it goes to the negative values.

“And the usual story for any company is whether credit funds have been raised for the purchase of equipment, whether there are plans to upgrade the mining fleet in the near future and so on,” Nekrasov enumerated.

The specialist added that at the moment due to the deficit of semiconductors there are delays in shipment of new miners to the market, but there are still many old energy inefficient computers.

Forced spending

Many mining companies are selling off mined coins, Nekrasov said.

He explained that this is not because miners think bitcoin is over and $20,000 is the best price for the coin.

“Maybe on a six-month horizon that’s really the maximum, but a bank with a loan won’t wait for bitcoin to go up in price, it needs a payment every month. Therefore, miners are forced to sell mined coins, although it is clear that it makes much more sense to walk (store) now”, – admitted the expert.

Many miners have to sell bitcoins in the current market conditions at a price of $19, 20, 21 thousand, agreed EMCD financial director Stanislav Akulinkin. He explained that this is necessary to cover the operating costs of cryptocurrency mining, such as paying electricity bills and employee salaries.

Miners will endure

Unplugging is not easy, warned Roman Nekrasov, co-founder of ENCRY Foundation.

The expert clarified that it is not free to take and mothball the mining business “until better times” overnight. Nekrasov pointed out that there are working obligations to employees, creditors and landlords.

“Therefore, it is necessary to look at the specific enterprise to understand whether it is more profitable to reduce production, mothball it or continue mining coins, even if in deficit, but in the future one or two years to compensate for the loss and come out in the plus,” believes Nekrasov.

He believes that there won’t be a mass wave of shutdowns. The specialist noted that this is not the first “cryptozyme” the industry has faced. Small and casual investors, as well as sketchy projects, will be washed out of the market, while bitcoin and worthwhile solutions will be put to the test, but will survive, the expert believes.

With the market falling, new data center investment projects become very attractive in terms of price, according to BitRiver external affairs director Andrey Loboda.

The creation of infrastructure for mining and power-intensive blockchain computing in Russia continues to gain momentum, and the number of orders from Russian and international partners continues to grow, the expert said. He noted that there is also an active use of the competitive advantages of eco-mining, which is very much appreciated by all market participants.

The downturn in the crypto market has a positive effect on the sphere of mining: during such periods, old and inefficient equipment shuts down, says EMCD CFO Stanislav Akulinkin. He explains that there is an organic replacement of equipment with newer and more efficient models, which encourages manufacturers to increase supplies.

In addition, during such periods, prices for mining equipment go down, because not all miners are ready to increase supplies in such conditions, the expert notes.

Akulinkin believes that the mass shutdown of equipment in the coming months is not worth waiting, because in recent years (2020 and 2021), mining companies have been actively increasing capacity by buying and installing the latest models of miners.

“Many of these companies are still receiving supplies that were contracted a year ago,” concluded the EMCD CFO.

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