The cryptocurrency exchange BitMEX has released a report today concluding that the total hash-rate of the Bitcoin network had fallen by approximately 31 percent. The percentage represents around 1.3 million Bitmain S9 miners that have been turned off.
It’s important to mention that BitMEX based its research on the electricity costs of mining Bitcoin, not taking additional expenses in the account, such as maintenance costs and capital investment required to purchase mining equipment.
Decreasing prices leading to more miners quitting
On November 16 and December 3, 2018, soon after the crypto market has crashed, the market’s downtrend caused two large downward difficulty adjustments for Bitcoin – 7.4 and 15.1 percent respectively. According to the report, the first adjustment was the largest since January 2013 while the second one was the biggest since October 2011.
This delay in the difficulty adjusting played a significant role in the Bitcoin mining industry’s huge revenue fall, which had decreased from $13 million per day to as little as a $6 million daily income from early November to early December.
As plenty of miners have exited the market, in six days ending on December 3, 2018, 21.8 percent fewer blocks were found as expected. According to BitMEX, this resulted in a 21.8 percent decrease in mining incentives which was topped by the falling crypto prices.
The average gross profit margin for miners before the crash was approximately 50 percent. However, that changed to roughly 30 percent for Bitcoin and 15 percent for Ethereum. While ETH only fell by 20 percent, which much less than Bitcoin’s huge crash, the mining profitability of the earlier was affected more negatively than BTC. BitMEX estimates that the reason for this could be that most Ethereum miners are “hobbyist minded” and less profit-focused, or that ETH miners have started from a more significant profit margin than their fellow BTC miner colleagues. Therefore, they were less inclined to monitor the Ethereum network, switching off their mining equipment when necessary.
Also, as mentioned earlier in this article, the gross profit margins are not accurate as BitMEX based its research solely on electricity costs, not counting in additional fees. Therefore, this could mean that neither Ethereum nor Bitcoin mining is profitable at the moment (or only for big mining operations who have the required capital to minimize their expenses).
The BCH Hash Wars and mining
The long and brutal “Hash Wars” of the two competing BCH forks, Bitcoin ABC (BCH) and Bitcoin SV (BSV), resulted in the two parties mining coins “uneconomically,” which resulted in huge losses for both camps, the report concludes.
While ten days after the split, Bitcoin ABC managed to increase its profitability to similar levels as BTC, miners in the network made severe losses totaling roughly $6.7 million. Bitcoin SV became the one with a lower level of losses as the value of the cryptocurrency has seen a great increase. However, miners in the network still lost over $5.3 million.
According to BitMEX, the Hash Wars was “almost completely pointless” as the war ending had no clear noticeable impact on either crypto or their value.
The report states that electricity costs are not the same in the crypto mining space. Therefore, BitMEX estimates that those miners have stopped their operations which had the highest electricity costs. The report estimates the average electricity cost at $0.05 per KwH.
According to BitMEX, the Bitcoin Cash split may have affected the recent price crash. However, we are in a bear market, and prices could have even fallen in case the BCH chain split did not happen. Furthermore, the prices seem to focus more on negative news than bullish events, the report concludes.
While it is a tough time of the mining industry, the current situation for miners with lower costs might be better than what people expect, according to BitMEX. The researchers added that, in case miners had acquired their equipment at lower prices, they could “still be in the green.”