Crypto exchange BitMEX released research today, examining the bitcoin price plummet in recent weeks as it relates to the Bitcoin Cash (BCH) contentious hard fork and broader mining sector. “The Bitcoin hashrate has fallen around 31% since the start of November 2018,” the study concludes, which equates to over one million mining machines essentially switching off.
BitMEX Examines Bitcoin Price Drop
In what’s sure to be a controversial analysis, especially in the light of its notorious hostility to the BCH project, crypto exchange BitMEX released, “The Price Crash & The Impact On Miners.” The 10 December 2018 research finds a direct connection to prices dropping and the “considerable stress” miners appear to be under.
They begin with Bitcoin Core (BTC) and how “prices have so far caused two large downward difficulty adjustments to Bitcoin, 7.4% and 15.1%, on 16th November and 3rd December, respectively. The 7.4% adjustment was the largest since January 2013 and the 15.1% adjustment was the largest since October 2011.”
Revenue for BTC miners fell by $7 million per day. “This drop in incentives was even larger than the fall in the Bitcoin price, due to a delay in the way difficulty adjusts. In the six-day period ending 3rd December, 21.8% fewer blocks than the expected 144 per day were found, as miners left the network before the difficulty adjusted, and as a result, fewer blocks were found. Therefore in the short term, there was a 21.8% fall in mining incentives on top of the impact of the declining price,” researchers note. Profit margins for the industry at large hovered around 50% prior to the recent downturn.
Bitcoin Cash Mining Profit Margins
BitMEX claims BCH “gross profit margin went negative during the split into two coins,” during the so-called Hash War. In fact, the chain split resulted in both mining “uneconomically.” BitMEX describes the eventual BCH victory as being anticlimactic, and the Hash War to be “almost completely pointless, as the war ending had no clear noticeable impact on either the coins or their value.”
However, researchers also readily admit to not having a “complete picture.” They tend to overweight electricity costs, noting, “Obviously miners have other costs, such as the capital investment in the machinery as well as maintenance costs and building costs,” and when factored the scene could be ever more bleak.
They also concede to variables such as the range in electricity prices, and how “not all miners have the same electricity costs and there will be a distribution.” And on that score, “31% of the hashrate was shutdown in the period, logically those with the highest electricity costs should turn off their machines first. Therefore the average electricity cost on the network should have fallen considerably in the past month,” BitMEX asserts.
Maybe Not so Bad After All
With certain assumptions taken for granted, “average Bitcoin mining gross margins have only declined from around 50% to 40%, implying a far more healthy situation for the remaining miners,” researchers posit. And flattening assumptions ignores how differences in the mining experience, from corporate to hobbyist to everywhere in-between, “should ensure the network continues to function smoothly despite large sudden price declines and allows the difficulty to adjust.”
Many BTC proponents blame the BCH Hash War for the coin’s drop in price. Researchers are not so sure. While some assume significant amounts of BTC were moved to fund Hash War partisans, “we think it’s easy to overestimate the impact of this. We are in a bear market and prices are falling regardless of the news or investment flows,” BitMEX explained.
Calling trader sentiment “king,” the study also concludes, “This is likely to be a very tough time for the mining industry. However, for miners with lower costs, our basic analysis indicates that the situation may be better than people expect.”
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