The price is low and the difficulty is high, and miners of all sizes are having a hard time.

Author: Jason from Golden Finance

Golden Finance Blockchain March 23rd News: Just as the cryptocurrency industry was eagerly looking forward to the upcoming "Bitcoin block reward halving", the global financial market was suddenly hit hard. This macro environment also had a great impact on the cryptocurrency market. Bitcoin then followed the traditional financial market and experienced a simultaneous plunge. The biggest blow to the Bitcoin price was the miners.

According to a report by the Securities Times, researchers at OKEx Research believe that many mining farms are still using Ant S9 mining machines for mining. Now that the price of Bitcoin has plummeted, the Bitcoin income from mining is far lower than the electricity costs. Old models like Ant S9 basically need to be shut down, while costs such as factory rent and depreciation of mining equipment still exist, so the losses of mining farm owners are quite large.

At the same time, due to the impact of the "halving market", many mining farm owners expect the price of Bitcoin to rise, so some mining farm owners will increase leverage to buy spot goods. After the collapse of Bitcoin prices, the losses of mining farm owners who increase leverage will be even greater. If the price of the currency continues to fall and falls below the shutdown price of the Ant S17, which currently has the best performance (about $2,600), the Bitcoin network will come to a standstill. Technically speaking, Bitcoin will enter a state of shock or death. Take Bitmain as an example. When it released the s17+ mining machine, it specifically provided miners who booked futures mining machines with a Bitcoin short option with a target of $5,000. Bitmain's move is intended to hedge the risk of market downturn for miners who have booked mining machines by using financial leverage, and boost the confidence of miners, but while leverage amplifies the benefits, the risks that miners need to bear are also amplified.

Miners of all sizes are having a hard time

One of the most direct effects of the falling Bitcoin price is that miners’ profits will decrease. According to F2Pool data, when the Bitcoin price plummeted to $3,600 on March 12, the computing power of the entire network shrank significantly, especially at the weekend of that week, when the difficulty of Bitcoin mining suddenly plummeted, which may be because some miners chose to shut down their machines.

At all times, Bitcoin miners need cheaper electricity, cheaper rent, and the latest mining machines. Therefore, when the price of Bitcoin plummets, the first to be affected will be those small mining companies that cannot afford the high costs. In this regard, Kris, a Bitcoin miner and cryptocurrency investor, said in his podcast that it is crazy that the difficulty of Bitcoin mining has reached 16.55 T, which means that the Bitcoin mining industry is still full of incentives and competition in the context of global economic chaos, and those "small fish" actually have little room to survive, because the giant whales are breaking in and making some hostile acquisitions.

Perhaps, many people think that large miners have enough resources and strength to survive the period of Bitcoin price plunge, and are unlikely to be affected by the market environment. They may even take advantage of the current situation to acquire small miners, thereby exacerbating the monopoly of the mining market. But is this really the case? In fact, the situation of large miners is not as strong as imagined, especially under the influence of the current new coronavirus epidemic, everyone will be affected. If large mining farms want to survive, they must rely on investment. Many people don’t know that large miners are basically in a state of mining while losing money. After all, when you have a large mining facility of 5MW to 10MW, the mining cost will also be very high. If you can’t sell the mined Bitcoin immediately because the price is too low at this time, you can only choose to hoard the coins, which will also cause liquidity problems.

So what happens if miners stop selling Bitcoin?

If we calculate that about 1,800 new bitcoins are mined every day, this means that 122,400 bitcoins will be mined between January 4 and March 12, which is about 50% of the funds recovered by short-term bitcoin holders, who usually do not receive more short-term gains than the newly mined bitcoins.

Of course, no one knows everything, so most of the time we are left with theoretical speculation based on supporting data. However, there are some reasons why one might think that large miners may be “destroying” the Bitcoin market, such as:

1. Liquidate leverage competitors (many small miners hedge on leverage trading platforms such as BitMEX);

2. Increase your market share before the “halving”;

3. Eliminate large market manipulators (such as PlusToken fraudsters and some institutional investors) before the halving.

These scenarios may be plausible, especially considering that the current COVID-19 pandemic has almost created a "perfect" black swan event. Some large miners may take advantage of the current environment to gain market dominance and regain control over prices. After all, if miners cannot control prices, then the "halving" will have no impact.

Mining difficulty reduced

In fact, mining difficulty has been on the rise since the beginning of 2020. But on the other hand, perhaps because the market sees a potential price increase in Bitcoin, the mining difficulty will increase, so mining difficulty can be regarded as an effective market indicator.

However, due to the unpredictable COVID-19 outbreak, we will see a sharp drop in global stock markets and a double-digit drop in Bitcoin. At the time of writing, according to BTC.com data, the Bitcoin network difficulty is 16.55 T. There are still 3 days before the next mining difficulty adjustment, and the next difficulty is expected to drop by 11.63% to 14.63 T. At the same time, according to CoinMarketCap data, the price of Bitcoin is $5,894.54, a 24-hour drop of 5.98%, and the market value has also dropped to $107.767 billion.

Bullish or bearish?

Let’s be realistic and look ahead to the week ahead. If Bitcoin can hold $5,800 support, all eyes will be on $7,200 as the most critical level to break. If $7,200 is successfully broken, the next resistance level is expected to be around $8,000, and we can even start to think about $10,000.

At the same time, we cannot ignore the current state of global economic turmoil. If Bitcoin fails to maintain the $5,800 support level, then we are likely to reconsider the $4,200 low. Although a drop below $4,200 is unlikely, if it falls below this level, the last support level may be $2,760 - why $2,760? Because this retracement level is 80% of the 2019 high of $13,800.

Part of this article is compiled from Ambcrypto and Cointelegraph