As Bitcoin Prices Approach $40k, Here’s What BTC Miners Shouldn’t Do
Bitcoin is taking the financial markets by a storm; again.
The pioneer crypto recently went past the $40, 000 mark, representing historic growth. Bitcoin bulls will seize on this milestone to make all kinds of rosy predictions.
They may be right, but nothing is definitive.
Institutional investors are likely the driving force behind this historic rally. The ripple effects of high Bitcoin prices are predictable. Trading is up because of heightened interest.
For miners, the effect of higher prices has multiple dimensions. Let’s look at the analysis below for some perspective;
Record High Hash Rate
Bitcoin mining is a competitive affair.
In the early days of Bitcoin mining, the activity was not as competitive as today. As equipment has evolved, mining difficulty has gone up.
Today, mining is literally survival for the fittest. When prices go lower, older mining rigs cannot compete with the latest ASIC rigs.
The hash power of a Bitcoin mining rig determines its profitability. This unit is a measure of how many cryptographic hashes a mining rig can compute in a second.
ASIC technology has progressed in the eight years of its existence to concentrate more efficiency in a mining chip. The growth of efficiency is evident when you compare new mining equipment with older versions.
For instance, the Antminer S19 Pro has a hash rate of 110 TH/s while an earlier version, the Antminer S9 has a hash rate of 14Th/s. This means that new mining equipment is exponentially more efficient than older equipment.
Increasing Mining Difficulty
The general mining difficulty of Bitcoin has gone up in its twelve years of existence. This rise is logical because Bitcoin got more popular, and miners increased.
Regardless, mining difficulty has its fluctuations. It has a positive correlation to Bitcoin prices and total network hash rate. The best example of this correlation was at the start of Covid shutdowns.
In March 2020, Bitcoin suffered a devastating crash, halving in value within a few days of trading. It bottomed out below $4,000 before starting the gradual ascent back.
This crash forced many miners out of business. Equipment like the Antminer S9 could not breakeven at $4,000. There were newer, more efficient rigs that could remain profitable, even with the low prices.
The effect of the mass redundancy was a decline in Bitcoin mining difficulty. Older equipment owners had to shut down shop or risk the possibility of running losses. Bitcoin mining consumes significant power, and the mining proceeds have to justify this expense.
Higher prices always encourage more miners to get in. The resultant effect is a higher mining difficulty. On the flip side, lower prices force certain miners out, resulting in a gradual lowering of mining difficulty.
Accordingly, those with the most efficient equipment are the biggest winners of such crashes. Bitcoin mining operates like natural selection, which can be devastating for the weak.
Rising Bitcoin Prices
The latter part of 2020 saw prices push the ceiling higher and higher. As soon as prices approached previous record highs, Bitcoin miners began to dream.
To begin 2021, mining difficulty is going up exponentially. At press time, mining difficulty was at a historic high of 20.6 trillion.
This figure indicates that thousands of miners are back in business. High prices are very lucrative for efficient miners. They get the highest margins. That said, even miners with lower efficiency can manage to break even and return to business.
The total hash rate of the Bitcoin network is at 152 EH/s, another record high. These figures indicate a record participation rate in mining.
Older Equipment Back in Business?
Therefore, it is logical to conclude that higher Bitcoin prices have brought older mining equipment back to life. A look at mining stats reflects this trend. The S19 Pro and similarly efficient mining equipment lead the way, as expected. The calculations from Whattomine.com show the S19 Pro having profitability of approximately 18 times more than older mining equipment.
That said, older equipment like the S15, S11, and some versions of the S9 are also back from retirement and profitable. The latter is particularly heartwarming because the S9 was a popular rig that had since become unprofitable. Many people have older equipment sitting idle and are willing to jump at this new lease of life.
But there is a catch, and here’s exactly why you should practice caution.
Precisely, as Bitcoin prices and difficulty explode, just:
1. Don’t Buy Obsolete Bitcoin Mining Gear From eBay; It’s Useless
Think about it, no one would have imagined that prices would be this high so soon. They will definitely be trying to mine the life out of their equipment or sell it.
Older equipment will obviously be significantly cheaper than new rigs. You may navigate online marketplaces such as eBay and find one at a throwaway price. From the seller’s perspective, it makes sense to sell it while possible. Their equipment is profitable, for an uncertain period, and they have to move on.
From the buyer’s perspective, this is a cynical move, at best. A few months ago, S9s were sitting idle, accumulating dust. The only hope of justifying the purchase is if prices continue to rise for the foreseeable future.
You might see an old mining rig on eBay and decide to take a chance. Should prices fall drastically, you will be left high and dry with junk equipment.
Judging from past events, Bitcoin prices can crash and bury the older mining equipment. For instance, a few days after surging to around $42k, Bitcoin prices, on Jan 11, tumbled back to around $30k. This happened in two days proving that things can go wrong very quickly. The profitability of older equipment will likely be short-lived, and the decision to purchase such equipment is not prudent.
If you had plans to get more efficient equipment, this lease of life should not stop you in your tracks. The marginal profitability that rigs like the S9 and S11 now enjoy is nothing in comparison to those that the S19 or S17 generate. The higher prices will also escalate mining difficulty. Holding onto junk equipment is not a long term solution.
In all seasons, the most powerful equipment is the safe option.
2. Don’t Take Out Loans for Bitcoin Mining Equipment
This period is an exciting time for everyone in the cryptocurrency industry. The problem comes about when people get too excited and get stupid. Thousands of people will now want to purchase Bitcoin out of fear of missing out (FOMO).
History shows that Bitcoin can be as volatile as it is lucrative. Any decisions made in furtherance of these goals have to incorporate its duality. Taking out a loan to purchase Bitcoin now can prove to be a ridiculous decision. Bitcoin prices have a general trajectory, but this does not factor in momentary events. Market corrections can be devastating when they happen.
So, imagine someone who takes out a substantial loan to purchase mining equipment or Bitcoin. Then, prices drop, and this person is left with periodical payments and interests that are unsustainable.
Therefore, it is unwise to take loans/mortgages to buy mining gear. It is irresponsible to overleverage, even in a historic market. Don’t put yourself in a potential hole simply to satisfy momentary whims. Take only risks that you can absorb. This way, your Bitcoin journey can be both bold and manageable to your bottom-line.
VBit Technologies is your link to efficient, up-to-date Bitcoin Mining Gear
Besides hosting facilities, VBit Technologies is an equipment reseller with a direct link to leading equipment manufacturer, Bitmain. This connection gives us access to efficient mining equipment like the Antminer S19 pro. Instead of purchasing obsolete Antiminers off eBay, purchase new equipment that will weather any storms even when prices drop.
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