As Bitcoin’s price tumbled to its lowest point of $6,200 the miners of the digital currency were faced with a bit of a reckoning, having to decide whether or not to continue mining the coin despite the tumbling profit margins.
Bitcoin’s miners are an important facet of the entire running of the cryptocurrency. They provide a new block on which transactions are written. However, should they decide to no longer mine and stop the flow of fresh blocks the cryptocurrency would be in dire straights.
Need for low energy
It was only miners who had access to some of the cheapest electricity that were able to remain profitable as Bitcoin dropped to the low end of $6,000.
Sophie Lu, an analyst at Bloomberg New Energy Finance in Beijing explained during this low that if Bitcoin price remained at this level for a few weeks, those with expensive energy costs over six cents per kilowatt hour would have to leave.
“There are definitely some miners who are already out of the money,” Lu said, adding that the industry’s most efficient players can keep going until $3,000.
Huge profits at the top
As Bitcoin’s price skyrocketed, so did its adoption, which led to a huge number of individuals flooding the network. This, in turn, led to mining fees skyrocketing too, making mining a hugely profitable activity.
Everyone from individuals to massive mining farms were joining in, regardless of the overhead costs as the margins were so high. However, the volatile nature of the coin and its decline to this new low made all those new miners extremely profitable.
“If you buy mining equipment now, it’s no longer profitable,” said Zhou Shuoji, a founding partner at FBG Capital, a Singapore-based cryptocurrency investment company, at the low point of Bitcoin’s drop.
In theory, Bitcoin should find support as its price approaches the cost of mining a new coin, Zhou added.
Bitcoin has since rebounded to around $8,500 at time of publication which has allayed these fears of loss of support by miners on Bitcoin.
Miners closely watch profit margins, and with there being other options out there in terms of coins to focus on, there can be quick movement in the mining community away from something that no longer provides profits.