Towards the end of cryptomining? Here’s how and why!

New data from blockchain analytics firm CryptoQuant shows miners are rapidly leaving their bitcoin positions.

14,000 bitcoins, worth more than $ 300 million in current prices, were transferred from minors owned by minors in a single 24-hour period at the end of last week – and over the past few weeks, miners unloaded the largest amount bitcoin since January 2021 This phenomenon, known as “miner capitulation”, usually indicates that miners are getting ready to sell their previously mined coins to cover ongoing mining expenses.

Bitcoin is currently trading around $ 21,600, an increase of around 3% within the last 24 hours. Yet the broader crypto market has been in free fall for several months, with bitcoin falling almost 70% from its record high of around $ 69,000 in November 2021.

Meanwhile, inflation is rising and the price of energy is skyrocketing as the war between Russia and Ukraine rages on.

Falling bitcoin prices and rising energy costs are pushing the miners’ profit margins, which is part of why some are selling bitcoin at current prices in an attempt to limit exposure to the industry’s continued volatility and hedge against any further risk to their performance.

“Given rising electricity costs and the sharp fall in the price of bitcoin, the cost of extracting a bitcoin may be higher than the price of some miners,” wrote analyst Joseph Ayoub. from Citi in a note on 5 July.

“With high-profile reports of resignations from communityAs well as miners who have used their equipment as collateral to borrow money, the bitcoin mining industry may come under increasing pressure, ”the memo continued.

Our costs, expenses and obligations are expressed in dollars ”.

Core Scientific, which is one of the largest mining companies in crypto-listed currencies in the US, sold almost all of its bitcoins in June. CEO Mike Levitt tells CNBC that like any other business, bitcoin miners have to pay their bills.

“We extract and earn or produce bitcoins, but our costs, expenses and obligations are in dollars,” Levitt said. On the same topic: An algorithmic stablecoin like $ UST is likely to pose a major risk! Here’s what the research says.

According to Levitt, bitcoin mining is still profitable with industry margins of around 50%. This is a decrease from the 80% margins recorded at its highest.

Last month, Core sold 7,202 bitcoins at an average price of $ 23,000. Levitt tells CNBC that they invested $ 167 million in sales revenue primarily in growth-oriented businesses, including new ASIC servers and additional data center capacity for their self-service business, operations and co-location.

But they also used some of that capital to pay down debt and help settle five-year employee stock prices.

In the long run, Levitt is optimistic because there is a huge positive operational leverage in the company. Above certain levels, every dollar bitcoin price increase represents 100% operating income for bitcoin miners.

“We would all be very happy if bitcoin goes back to $ 35,000, $ 40,000. There is no doubt about that,” he said.

But productivity per. unit of electricity also matters, and when prices are low, large miners like Core Scientific tend to face less competition from hobbyists and smaller operations.

“As prices fall, global hashrate – or the competition for bitcoin production – declines as less efficient miners leave the network,” Levitt explains.

Hashrate is a term used to describe the computing power of all miners on the bitcoin network, and it has fallen by 15% in the past month. This is ultimately a good thing for large miners who can afford to resist braking.

As less efficient miners leave the network and overall hash rates fall, machines that continue to mine bitcoin become more productive.

“And so energy costs, if you will, per bitcoin produced, fall,” Levitt said.

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Thomas Estimbre
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