Disclaimer: The views and opinions expressed in this article belong exclusively to the author, and do not reflect the beliefs and views of Hashpowah by default.
Many people that are outside of and cryptocurrency mining in general, look at the industry, and all they see is how we are printing digital money. However, the reality of Bitcoin mining is much harsher.
In the past few weeks, the COVID-19 virus caused a global lockdown. The virus shattered the financial markets and the hopes of many small-scale crypto miners. Naturally, the price of crypto across the board was also negatively affected. The manic/panic behaviour of the market caused a massive loss of value in the markets (with the exclusion of healthcare product companies).
We have since recovered, but many miners were influenced, causing them to stop their mining operations. Some even forced to sell their equipment. Most only temporarily had to stop mining Bitcoin because of its decreasing price and are now again participating in the network.
The hash rate is higher than the current mining difficulty, so we will see another increase in the next seven days.
Bitcoin mining business logic
These events shine a light on the often unseen side of mining. The mining business needs to balance between expenses and profits, just like any other business. Entrepreneurs follow the market price movements and calculate the best moment to sell their product. However, strong adverse changes like the ones experienced in the past few weeks can destroy a mining operation. Miners (and everybody else) don’t know how the price of a digital asset will develop.
They need to make fast and vital decisions. Any mistakes can bring an immediate end to their mining operations. With Bitcoin mining, you are at the mercy of markets. Unlike with stocks, you can’t directly sell at a convenient time (by setting up a stop-loss), because you are physically invested. You can only sell the product from your investment, which in this case, is Bitcoin.
The newly mined Bitcoin is usually instantly sold unless the current price is unprofitable. Sometimes, even this is not enough to avoid having to sell newly mined Bitcoin, which further pushes the price down.
The above-mentioned facts make miners extremely sensitive to rapid drops in price, especially if they are not equipped to withstand blows from the market. On the other hand, large-scale miners that have been profitably operating for at least a couple of years have enough savings to face and endure a financial storm.
Bitcoin mining used to be easy to start and grow with, but just as the mining difficulty rises, so does the difficulty to enter and remain in the mining industry.
What are your challenges as a Bitcoin/Crypto miner?