Overview
The cryptocurrency market has experienced a significant downturn in recent weeks, with Bitcoin prices dropping approximately 45% since November 2018. Concurrently, Bitcoin’s hashrate—the total computational power securing the network—declined by 31%, equivalent to 1.3 million Bitmain S9 miners being deactivated. This suggests severe stress within the mining sector, particularly for high-cost operations.
Key Observations:
- Price Decline: Bitcoin fell from ~$6,300 to ~$3,500 (November–December 2018).
- Hashrate Drop: Reflects reduced profitability, forcing inefficient miners offline.
- Difficulty Adjustments: Two major downward adjustments (7.4% and 15.1%) occurred, the largest since 2011–2013.
👉 How Bitcoin Miners Adapt to Market Volatility
Daily Mining Revenue and Costs
Bitcoin Mining Economics
- Revenue Drop: From $13M/day** (early November) to **$6M/day (early December).
- Short-Term Impact: A 21.8% reduction in block production exacerbated revenue losses before difficulty adjustments.
Assumptions:
- Electricity cost: $0.05/kWh.
- Hardware: Bitmain S9 specifications.
| Cryptocurrency | Gross Profit Margin (Pre-Crash) | Post-Crash Margin |
|---------------|-------------------------------|-------------------|
| Bitcoin | 50% | 30% |
| Ethereum | N/A | 15% |
Miner Profitability by Cryptocurrency
Ethereum Mining
- Hashrate Decline: Only 20% (vs. Bitcoin’s 31%).
- Price Drop: 54%, yet fewer miners exited.
- Potential Reasons: Hobbyist miners or higher initial margins delaying shutdowns.
Bitcoin Cash ABC
During the November 2018 "hashwar" between Bitcoin Cash ABC and Bitcoin Cash SV:
- Gross Margins Turned Negative due to uneconomical mining.
- Post-War Recovery: Profitability normalized after 10 days, but the conflict had no lasting market impact.
👉 Understanding Cryptocurrency Mining Economics
Critical Analysis Flaws
Exclusive Focus on Electricity Costs:
- Ignores capital depreciation, maintenance, and facility expenses.
- Actual profitability likely negative for most miners post-crash.
Non-Uniform Electricity Costs:
- High-cost miners exited first, lowering the average network electricity cost.
- Illustrative model suggests average margins fell only to 40%.
Causes of the Price Crash
- Speculative Theories: Miner sell-offs to fund Bitcoin Cash "hashwar" (e.g., Slushpool net sales 17.5σ below average).
- Broader Bear Market: Prices declined irrespective of miner activity, driven by trader sentiment.
Conclusion
- Survivability: Low-cost miners (e.g., subsidized Bitmain hardware buyers) may remain profitable.
- Market Dynamics: Difficulty adjustments and cost heterogeneity help stabilize Bitcoin during volatility.
FAQ Section
Q1: How does Bitcoin’s difficulty adjustment protect miners?
A1: It reduces mining complexity when hashrate drops, restoring profitability for remaining miners.
Q2: Why did Ethereum miners stay online despite lower margins?
A2: Possible hobbyist participation or slower response to price shifts.
Q3: What was the outcome of the Bitcoin Cash hashwar?
A3: No tangible impact on coin values; mining economics normalized within days.