After a tumultuous 2020 that continued into Bitcoin (BTC) setting new all-time highs in 2021, Bitcoin miners are facing a bittersweet scenario — profits have skyrocketed, but multiple issues prevent them from buying more devices and boosting Bitcoin’s hash rate.
According to the founder of major mining pool BTC.Top, Jiang Zhuoer, global electronics supply chain issues are having their effect on the mining industry as well. Speaking with Cointelegraph, he said:
“There is definitely a shortage of equipment right now because, since the coronavirus epidemic, the global supply chain has been interrupted and is now in the process of gradually recovering. But the demand for chips has greatly increased, so now all industries are short of chips, whether it is Bitcoin mining or other industries, such as consumer electronics or even the automotive industry.”
Recently, car manufacturing giant General Motors shut down some of its plants due to the inability to source chips. Other carmakers have seen similar shutdowns in recent months as well.
The shortage of mining devices can be easily seen in Bitcoin’s hash rate. Since the halving in May 2020, Bitcoin’s hash rate has increased from about 92 million terahashes per second to its current reading of 166 million, an 80% increase. Bitcoin’s price, on the other hand, increased from $9,000 to over $46,000, a gain of over 400%.
Bitcoin’s hash rate has a relatively straightforward correlation with price. Barring new technological advances, increases in price should be closely mirrored by increases in hash rate. While the rate of new devices coming online should lag behind the price in bull markets, the hash rate has remained relatively stagnant in the past few months.
This means that current miners are seeing much higher revenue for individual devices, which, added to the shortage, results in inflated unit prices for ASIC miners. According to ASICMinerValue, obtaining a Bitmain S19 Pro right now costs about $9,000, while its official price is less than $4,000.
According to Jiang, the mining industry also saw major issues in 2020 due to Bitmain’s internal power struggle. “The indefinite delay of the Ant mining machine S19 in June, July and August 2020 caused us a lot of difficulties. We underwrote our customers according to the shipment period and used our own machines to make up the revenue to our customers,” Jiang said. With the Bitmain saga being resolved in favor of Micree Zhan, there should be no more specific issues with purchasing the company’s miners.
Bitcoin ASICs hitting fundamental performance limits
Despite the variety of issues, 2020 was also a pivotal year for the Bitcoin mining industry due to the release of new-generation ASIC devices with improved energy efficiency. The industry leaders were the Bitmain Antminer S19 Pro and MicroBT Whatsminer M30S+ series. Publicly listed manufacturer Canaan also released new miners such as the AvalonMiner 1166 Pro and the liquid-cooled A1066I unit.
The new miners offered significant efficiency gains, primarily due to their more advanced chip lithography. The S19 Pro uses 7-nanometer chips, while the M30S+ uses 8-nm lithography. The measurement indicates the distance between two ends of a transistor on a chip — at these values, it is just a dozen atoms wide. Lowering the distance helps increase computing performance and reduce power consumption.
Jiang explained that the Bitcoin mining industry is currently experimenting with TSMC’s 5-nm process, while the chip manufacturer is already researching 3-nm lithography. A reduction from 5 to 3 nm would be a major achievement for the computing industry, as it would allow to pack roughly 60% more transistors in the same chip. But according to Jiang, the latest advancements in chip technology are hitting some fundamental physical limits:
“The smaller the nanometer [distance], the less significant the increase in power efficiency, because when the nanometers decrease to a certain level, it will involve quantum problems. […] The quantum [tunneling] effect will cause electrons to jump around between different diodes, therefore, the electron leakage ratio will rise.”
The practical result is that newer chips will have better computing performance but are unlikely to carry as strong improvements in energy efficiency, Jiang said. “Bitcoin mining actually does not require high computing; it requires a better power efficiency — that is, the less power you consume with the same hash power, the better,” he added.
Other types of performance improvements like liquid cooling can be useful but do not radically alter the miner’s efficiency. Jiang explained:
“Liquid cooling can only improve the mining efficiency by a certain degree. For example, a machine with 100 watts per terahash power efficiency, if you use an air-cooling system, after a period of time, due to dust or inappropriate cleaning, the machine’s power efficiency will decrease to 105 watts-terahash, while the liquid cooling system can allow you to increase the efficiency to about 95 watts-terahash. That’s only a 5% improvement — this difference is not significant.”
Is now a good time to enter the mining industry?
The vastly inflated revenue for miners comes as the global electronics industry is under intense pressure. Normally, new devices would quickly fill the gap and bring down the average revenue to mean values. The current chip shortages mean that this outcome may take longer than usual to occur, but existing devices are still being sold at a significant-enough premium to make prospective buyers consider their actions twice. For example, the S19 Pro currently has a return-on-investment period of eight months based on the electricity price of $0.04 per kilowatt-hour. However, if its revenue were to collapse to the still-high levels of December 2020, the miner would need to work for up to 40 months to pay itself back.
In the three years that the miner could potentially require to turn a profit, new devices could make the S19 partially obsolete, prolonging the payback period even further. Still, according to Jiang, the mining industry could be heading for consolidation around state-of-the-art devices, with only marginal improvements over previous generations. This would improve the lifetime expectation for mining devices, ensuring the stability of any investment made now or in the future. ASICs have already stabilized to a significant extent, as the five-year-old Bitmain S9, for example, only became completely unprofitable after the 2020 halving but is now once again generating a reasonable profit of $3 per day, assuming electricity prices of $0.04 kWh.
“Unless you buy a very expensive mine at the peak of the bull market, it’s hard not to make profits,” Jiang concluded.
Are miners better hodlers?
Jiang believes that the economics of mining makes it a superior method to acquire Bitcoin and hold it through the entirety of a rally. According to him, most Bitcoin miners kept their BTC all the way to $20,000 in 2017, while regular holders had a much lower chance of holding through to the top.
Jiang didn’t wish to elaborate on the data source of this conviction, which goes against the general wisdom that miners immediately sell the Bitcoin they mine. An analysis by Coinmetrics shows a nuanced picture: Miners hold a very significant portion of the Bitcoin supply, most of which was acquired in the early years of its existence. Partially confirming Jiang’s thesis, during the 2017 bull market, the miners seem to have accelerated their selling only around October, closely timing the top at the time.
A sizable increase in the miners’ Bitcoin holdings can be observed toward the end of 2019, suggesting that they began holding a larger proportion of their proceeds. Still, the relative prevalence of miner holdings has been on a steady decline throughout Bitcoin’s history, indicating that most of the BTC they mine ends up sold on the wider market.
According to Jiang, though, miners can be less influenced by loss aversion: the natural human tendency of avoiding more profitable outcomes if they also carry higher risk.
He explained that the mechanics of mining make it psychologically easier to hold through volatile markets:
“The first reason is that the mining machine is like a golden goose that can lay golden eggs in the bull market, so no miners would sell this golden goose […] The second reason is the process of selling mining machines is much more complicated than selling Bitcoin on exchanges.”
The case for acquiring Bitcoin exposure through mining remains nuanced. In most cases, breaking even on the investment requires waiting for a year or more, depending on the initial entry point. Compared to buying Bitcoin outright, miners may lose out on major price gains immediately after, but this is compensated by higher resilience during market downturns. The mining device can pay itself off even if the price of Bitcoin takes exceedingly long to return to its previous highs.
Bitcoin mining is not just for professionals
Being a successful miner is similar to running a business. After an initial setup cost, the venture can turn a steady profit but requires maintenance and oversight. Not everyone has access to the conditions required to set up a successful mining farm, the most important of which is the location — cheap electricity is a must for miners.
It is still possible to purchase ASICs from retail shops and mine at home, provided that the home electricity price is below $0.10 kWh. Such figures can usually be found only in developing countries that have ample natural resources.
Some mining pools and companies offer a variety of ways for others to use their facilities — for a fee. The primary methods are colocation and cloud mining, which differ significantly in terms of their structure. Colocation services merely charge a fee for electricity and maintenance, while the devices are provided by the client. Cloud mining services are, in general, much different and riskier than self-hosted mining. Usually, the contracts last a predefined amount of time and carry significant maintenance costs. This gives a limited amount of time to recoup the initial investment, making it more of a bet on the price of crypto with somewhat limited upside. Overall, the opacity of the mechanism often raises questions from regulators about the legitimacy of some cloud mining operations.
Jiang’s company recently launched a service called “joint mining,” which changes the business model of cloud mining to make it closer to real mining:
“For example, a customer spends 10,000 yuan [$1,540] to buy a mining machine to dig a mine. When he receives 10,000 yuan of Bitcoin from the mining machine, after his investment returns the capital, we start to charge service fees. The Bitcoin produced afterwards is net profit. We collect 20% of the net profit — that is, 20% of the Bitcoin produced later. If the customer doesn’t get back the money in the end, we won’t charge.”
The BTC.top platform is thus closer to an assisted colocation service than classical cloud mining, with the company also allowing clients to “withdraw” their miners and have them delivered to a destination of their choosing.
As the Bitcoin mining industry stabilizes and matures, the companies involved in the business may become important diversification tools for investors. The unique risk and reward profile of mining is similar to gold mining companies, which are traditionally included in many exchange-traded funds for gold exposure. Jiang concluded with another parallel between Bitcoin and gold:
“The bull market of Bitcoin has increased more than I expected, so I expect that the top of this bull market may not be $100,000 as I expected, but may reach $200,000 or even $300,000, making Bitcoin exceed the total market value of gold.”
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Real Estate Giant Teams up with Gemini to Buy Bitcoin and Allow BTC Rent Payments
Caruso, one of the largest estate companies in the US, has entered the BTC space with an undisclosed investment. The organization also revealed it will begin accepting bitcoin as payment for rent following a partnership with Gemini – the cryptocurrency exchange founded by the Winklevoss twins.
Pay Rent with Bitcoin
Without specifying the precise amount, Caruso announced earlier that it had made a “significant initial investment” in the primary cryptocurrency as part of its treasury management strategy. The move has made the company “the first to adopt the technology in the real estate industry.”
The firm completed the purchase through a partnership with Gemini, a US-based cryptocurrency exchange and custodian. The innovation reinforced the company’s confidence in the digitizing space.
Additionally, the firm enabled its tenants to pay rent with bitcoin, should they choose to do so.
Rick Caruso, founder, and CEO of the company weighed in on the topic:
”We believe that cryptocurrency is here to stay. We believe that bitcoin is the right investment for us. We’ve allocated a percentage of what would normally go into the capital market into bitcoin.”
The billionaire went further and stated crypto is a long-term resolution and ”it’s not about the next year or five years”.
”We are thrilled to partner with Caruso as they continue to push the real estate sector to new heights by embracing cryptocurrency for the benefit of both their customer experience and their own business operations. We are excited to help them execute their digital asset treasury strategy and advise them more broadly throughout their cryptocurrency journey.” – commented Gemini’s CEO Tyler Winklevoss.
The Los Angeles-based company has become a part of the growing institutional adoption of bitcoin around the globe. According to experts, companies like MicroStrategy, MassMutual, Tesla, and more are a vital factor behind BTC’s recent price increase.
Bitcoin as a Form of Payment
While Caruso may be the first firm from the real estate industry to adopt BTC as a payment method, companies from other sectors have well preceded it. Most recently, the popular NBA team Sacramento Kings said it will give the option to its players to receive their salaries in the primary cryptocurrency.
Another fresh example is the UK private jet company – PrivateFly. The organization revealed that nearly 20% of its yearly payments were paid in bitcoin.
Binance Coin, BitTorrent Token, Ontology Price Analysis: 10 April
Binance Coin registered huge gains in the past few weeks. BitTorrent Token could consolidate before seeing recovery, while Ontology could face selling pressure if it falls out of the rising channel it was trading within.
Binance Coin [BNB]
From March 25 to April 10, at the time of writing, BNB has climbed from $225 to $473. Using the Fibonacci tool for its move from $225 to $356, where BNB had faced some resistance in early April, extension levels were plotted. These levels have been reached, and more ambitious targets for BNB lie in the $550 region.
It is not out of the question that BNB reaches these levels, especially with the BNB quarterly burning set for later this month. On the hourly, the RSI continued to stay above neutral 50 to show an uptrend in progress, and no divergence was seen. The Stochastic RSI was dropping toward oversold territory.
BitTorrent Token [BTT]
On the hourly chart, BTT broke out of a descending channel but was rejected at the $0.01 resistance level. Sometimes, breakouts from descending channel consolidate within a range before reaching toward the peak of the channel.
This could be what is happening for BTT. It has resistance at $0.01 and support at $0.0075. The breakout point at $0.0085 is also likely to serve as support.
Trading volume was trending downward. The Awesome Oscillator showed bearish pressure was present, although it was not strong.
ONT was also trading within a channel, but this one was ascending. Again, the short-term outlook placed ONT right beside a level of importance. There was resistance for ONT at the $2.05 level, and support from the lower boundary of the rising channel.
ONT began trading within this pattern about three days prior to the time of writing. A session close beneath the channel would likely see ONT face further selling pressure to take it to the base of the channel at $1.72. THE OBV has been on an uptrend in recent days but the MACD was beginning to drop.
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IOTA co-founder discloses Coordicide’s release date
The cryptocurrency market has seen the altcoins surge despite the correction witnessed in the short term. IOTA, the altcoin ranked 27th on CoinMarketCap, has grown dramatically on the charts right from the start of the month.
IOTA co-founder Dominik Schiener recently did one of his systematic AMA sessions. He elucidated some of the most important concepts about the development of IOTA and its updates, Chrysalis and Coordicide.
To begin with, Schiener answered a question about the challenges that IOTA 2.0 or Coordicide might face in its deployment process. One of the issues faced by the group of developers was to discover and fix bugs on major components.
The co-founder further shared his optimism on the progress in the AMA session.
“Coordicide will fully decentralize IOTA. On the theoretical side we are doing very well to deliver what is promised which is a fully decentralized IOTA. I think the biggest risk is the implementation.”
At this very moment, IOTA targetted Q4 of this year as a tentative date for Coordicide’s rollout. However, this depends largely on the results of the incentivized testnet, Schiener said:
“A lot of that will depend on how well the incentivized testnet goes, that’s why we always say that the incentivized test network is the most important part of Coordicide. That’s where the research combines with the implementation to test in an open environment.”
Furthermore, Schiener addressed concerns regarding data sharding. The Value Tangle team, just like the Coordicide team, reviewed all the “paths” and possible implementation of this component. Schiener stated:
“I think when it comes to sharding, if I had to sum it up, I think the biggest risk is going to be building a solution that is going to kill IOTA adoption. In a similar way of how they said the biggest risk to Ethereum is Ethereum 2.0.”
What’s interesting to note here, is the analogy with ETH and ETH 2.0.
Keeping all the risks in mind, Schiener concluded:
“With that in mind, the team have received feedback from their corporate partners to create a solution that the market wants. In large part, Chrysalis will be the culmination of that feedback.”
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