Hash power falls as cryptocurrency miners close up shop.
This year has been a struggling time for the mining industry worldwide. From US to China, major mining groups are downsizing, laying off employees or closing their doors altogether. The profitability margin has been growing slimmer and slimmer and the effects can be seen from the smallest users to the largest mining groups.
The cost of individual mining units has plummeted, mirroring the cryptocurrencies they mine. Most manufacturers were unable to keep up with the demand in 2017, now they are having sales for their stock. For crypto networks to be healthy and truly decentralized, there needs to be widespread mining across many different countries. Now the questions seem to be how many miners can last through this down market and what is the future for mining?
Some of the biggest and most promising mining companies have had a difficult year through 2018. The long term effects of this market downturn are yet unknown. Until prices stabilize in crypto, the difficulty levels for these miners will continue to get worse.
Late this year the mining operation Giga Watt publicly declared bankruptcy amid the crypto market downturn. This year seems to have been especially hard on this promising new mining enterprise. In February of this year, the news was released that there was a multi million dollar lawsuit brought against Giga Watt on the allegation that they committed securities fraud with their 2017 ICO and their Giga Watt tokens. Their ICO raised them a substantial amount of funds to the tune of 20 million dollars at the time.
The plaintiffs assert that the promises and contractual obligations from the company have not been met and are seeking compensation for their sunk investments. While this kicked off the company’s year in 2018, it has only gotten worse for them since. August saw their CEO and founder Dave Carlson leave the company, and their entire workforce has been reduced from 63 to 16 workers.
The final blow for Giga Watt followed soon after. The company filed for bankruptcy in November and the details are startling to say the least. The company claimed their current assets were worth in the area of $50,000, with their liabilities around $50,000,000. They currently still owe over $1,000,000 to several utilities providers in their native Washington state. This is in addition to the $70,000,000 owed to other creditors associated with the company.
The lawsuits seems to be pilling up against several ICO offering companies. With the crypto market downturn still progressing, this might be a continued theme going into 2019.
China has historically been one of the biggest markets for Bitcoin miners in the world. Some of the biggest mining facilities and pools are established in China. While constant threats of banning both the mining practice and the cryptocurrency itself have done nothing to deter these miners over the years, it seems the crypto bear market has been an impassable obstacle for some in this region.
Even with China reported to have some of the lowest electricity prices in the world, Hong Kong based group Suanlitou announced it was unable to even cover their utility costs over the month of November. Videos spread online of Chinese mining facilities carting mining units out of their facilities by the wheelbarrow full. While these videos always have questionable authenticity, there surely has to be some truth behind all of this.
The reports of mining facilities selling their mining units off as scrap weight must be an exaggeration, but what is certain is that the individual price of these units has fallen immensely since 2017. This is due to numerous factors, the biggest being the supply has finally risen far above the demand.
The biggest manufacturers like Bitmain were claiming they could not meet the market demand throughout 2017, though some have speculated these were just tactics to keep the market artificially inflated. What once was the undisputed leader in ASIC technology, now it seems like Bitmain is facing a lot of pressure from both market forces and competition.
Bitmain is required to release their accurate sales figures before the launch of their IPO, and it seems they have been ramping up their sales volume to make these figures look promising for investors. Reportedly they have been dropping the cost of their patented Antminer units to both keep sales moving in this down market, and squeeze their competition.
There is no hiding the fact that Bitmain has lost immensely with their Bitcoin Cash (BCH) holdings. The cryptocurrency has lost significant value throughout the last year, falling from a height of over $2,500 dollars to lows of under $100. This is due to both the bear market and the ongoing fork war between Bitcoin Cash and Bitcoin SV.
The Bitmain IPO has been long awaited throughout 2018 with speculation from just about every major figure in cryptocurrency. The narrative has gone through several iterations ranging to the extreme side with rumors of “hesitation” from the Hong Kong Stock Exchange to outright claims of it being cancelled. Investors in Bitmain have not helped matters either, with an ongoing back and forth discussion on whether or not they actually agreed to partnering with Bitmain in the first place. This aside, company has gone ahead with filing the application for the HKSE listing, showing that they are presumably getting closer to the launch date which they claim will be sometime early in 2019.
Even amidst this downturn for crypto miners around the world, the mining technology firm Bitfury has stayed busy throughout 2018. They closed their venture capital round, securing an impressive $80,000,000. While there were several rumors of a possible IPO in the works, presumably they have shelved these plans for now after this successful round of fund raising. If they indeed pursue the IPO in 2019, they would be one of the many mining companies racing to be the first to do so, placing them ahead of Bitmain and their repeated attempts to get their IPO off the ground.
Bitfury is well known for their miner chips and technology. They are one of the leaders in this rapidly expanding technology. Their recent announcement cements their place as a major player in this field. The firm announced the release of their brand new ASIC chips, the Bitfury Clarke. This new chip promises to be faster, more powerful and increasingly more efficient. This new chip is customized for the SHA256 algorithm.
Also in recent news, Bitfury has two new high ranking professionals joining their team. Antoine Dresch is co-founder of the tech investment fund Korelya Capital that lead the venture capital round for Bitfury. He is also a former executive at several major investment banks. Even more impressive is the addition of a former member of the SEC, Annette Nazareth. The presumed statement made by her joining the team is that Bitfury will remain in the good graces of the SEC’s watchful eye. Annette will be an advisor and help Bitfury conform to all regulations.
These challenging times will weed out the smaller and less prepared crypto miners and pools and only leave the strongest and most well funded organizations. Next year could be a major rebound for the mining ecosystem, but we wont be able to tell until some time from now. You can speculate that more and more mining power will continue to feed into more centralized parties, meaning more of the network is controlled by only a few big names.
This has major implications for Bitcoin and other major cryptocurrencies, but at present moment, most miners need to focus on their bottom line and it seems many have chosen to pack up their operations until profitability returns to crypto mining.
Who you’re reading:
Anthony is a journalist and blockchain enthusiast that closely follows the day to day happenings in the crypto space. With a lifelong passion for technology and investing, cryptocurrency presented itself as the perfect platform to explore new concepts while we envision the future of finance and the internet. He considers blockchain to be the most innovative and exciting space in the world and plans to continue following wherever this technological revolution takes us.
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Disclaimer: Any and all opinions expressed here are those of Anthony Barraclough alone. The article is for educational and/or entertainment purposes only, so please use it at your own risk.