Crypto Winter’s Effect on the International Mining Community

The drop in the value of the entire cryptosphere has been a focal point of public interest when it comes to blockchain technology in the most recent past. During the first half of the month, bitcoin and all other digital currencies saw a massive slide in both market cap and individual token prices. That resulted in hundreds of billions of USD being siphoned from the market and the token prices thumbing by 20 percent or more on particularly bad days.

But, the focus on the investment space does not mean that other domains of the cryptocurrency ecosystem are doing well. Quite the opposite, crypto mining is right now suffering immensely. Many mining pools and other companies decided to take their foot off of the gas pedal and quickly scale down their production. The same happens as cryptocurrencies take on new low values, while at the same time, the price of energy is skyrocketing and its accessibility is going down. All of this is eating into the profits of miners and many find that the best solution is to simply walk away from any new expansions or maximal amounts of mining production. 

Hash Rate Plummet

The hash rate represents the combined computing power that goes into the cryptocurrency domain of any particular network that uses the proof-of-work system. Each of the networks has its own pool of mining rigs that support it and all of them took a huge downturn once the market crash occurred. More precisely, it took place once the mining companies began calculating their return on investment. So, the hash rate of the bitcoin network fell over 5 percent since the BTC price reached 25,000 USD. 

At the same time, the price of GPU units, or graphic cards for computers and other digital equipment, fell by some 15 percent during the same period. These GPU units are employed by the mining rigs for the purpose of generating the hash rate. But, with the market hitting a downturn, the owners of these second-hand GPUs began unloading them on the market for used computer gear. Most of them are mining ventures big and small that decided to scale down or completely shut down their operations.

Supply and Demand 

Many miners are giving up their business because the calculation that was there when bitcoin was 50,000 USD or even 40,000 USD is not there with a 20,000 USD range. That is why so many are offloading their mining rigs and trying to cash out before they are hit with even lower prices for the same gear. That is also showing that people believe that the downturn is neither close to ending nor that it reached its bottom. If a mining operation is shutting down, chances are that the same miners see the necessity of closing shot sooner instead of waiting for the tide to turn. Throwing in the towel seems like a more feasible possibility than weathering the storm for these businesses. 

Furthermore, the setup is not a big surprise for many struggling mining operations. For the better part of 2022, the price of bitcoin and energy, in the case of this network, has not been favorable for the miners. Now, the price for both entities is borderline disastrous. For many, that figure skews beyond that border and that is why so many esports players and other gamers will be able to get their hands on affordable GPU cards in the coming weeks and months. That is dictated by a supply and demand calculation. When it takes into consideration the energy factor as well, the calculator points to more rough times ahead.

Range-Bound

There is another aspect of the downturn in bitcoin and overall crypto prices, which is connected directly to the future trajectory of the same values. Right now, it is clear that miners are suffering from the drop in the price range. Many of them are worried about the long-term potential as well, being that they are seeing their colleagues go down fast and hard all around. 

That is why the ones that are still operational will likely dump many tokens on the market as soon as the price recovers somewhat. The same will in turn stop the price recovery. In other words, the miners themselves will be propping this situation of bitcoin and other big tokens being stuck in limbo between a further drop and a stronger recovery. For the latter to happen, the miners will have to be a lot more confident in the overall macro effects and the conditions for the strong bull market to take root. 

 Energy Conservation

Underlining the drop in the hash rate is the problem of the crypto proof-of-work network’s energy consumption. During the summer of 2021, one of the main reasons why the bull market ended was the issue of energy expenditure that goes into these networks. The proof-of-stake systems are still under development but no clear indicator is showing that they will be up and operational anytime soon. That includes ETH 2.0 and its most developed such system – it is still in the best of scenarios, months away from any limited deployment. So, mining will continue to be the primary means of token creation and there is no doubt about that. 

Yet, at the same time, nations like Germany are actively asking their residents to conserve energy in any way they can. The reason is the war in Ukraine and its effect on the international energy market. With the prices of energy going up and the supply of natural gas during winter in a questionable form, people are worried about their future. In that setup, it is completely natural to expect that the public assessment of digital currency mining will also turn even more negative. Some governments might even ask for a ban on cryptocurrency mining of any kind, no matter if they are supplied by power from fossil fuels or renewable energy. All of that put together shows an exceedingly bleak future for the crypto mining industry.

Source: Coindesk