Survival of the fittest: How do experienced miners adapt to the cold winter in a bear market?

In the current crypto bear market, miners have been hit hard by the decline in digital asset prices, and many miners have been forced to exit the market. But at the same time, as these miners leave, some experienced miners are taking up more and more market share.

Crypto mining winter

Many mining companies around the world have closed down this year, and China has also shut down tens of thousands of mining machines. However, the bear market has inspired the creativity of miners, who have continued to thrive by using new strategies with high efficiency and low cost.

Matt D'Souza, a consultant at KPMG who runs one of the largest mining pools for the Aion Network, said that while the bear market has caused many facilities to shut down, experienced miners are becoming more creative and gaining a larger market share.

D'Souza explained that the miners currently experiencing downtime most likely purchased their machines and signed hosting contracts between the fourth quarter of 2017 and the second quarter of 2018 , when BTC was trading at over $9,000. During that time, the S9 sold for over $2,000, and a two-year hosting contract for each S9 miner cost an average of $120 per month.

Survival of the Fittest

According to Blockware, under current market conditions, the price of hosting an S9 miner is $60-75 per month, depending on the number of miners. "As in every market cycle, inefficient market participants are eliminated, but innovative participants will observe the mistakes of existing companies, operate lean and efficient businesses, and build long-term competitive advantages."

On average, individual miners need to pay $0.13 per kilowatt-hour to run their mining machines at home or other places where electricity is priced at residential rates. According to Blockware, by signing a contract with a hosting company, miners can reduce their total costs by more than 40% during the BTC decline, keeping electricity costs at $0.06 to $0.07 per KWh.

D’Souza said:

“ A miner who locks in a two-year hosting contract at the current rate is equivalent to an investor who buys BTC at $3,500 in two years . Miners need to pay an average of $60-75 per month for each S9 miner and pay $265-340 for the mining equipment they purchase. Such favorable hosting rates and mining machine prices are only available to miners in a bear market.”

For new mining operations or expanding operations, it is important to calculate the capital expenditure, including the cost of building the facilities and purchasing the mining machines, as well as the operating expenses of running the mining machines (the expenses are mainly calculated based on electricity costs and capacity).

Geopolitics and the US-China trade war

Another key factor is that most mining machines come from China, and geopolitical tariffs have become a key consideration. Blockware said that in anticipation of the implementation of tariffs in the Sino-US trade war, several large miners in the United States pre-purchased thousands of new S9 mining machines at preferential prices for bulk purchases . However, their facilities and energy capacity have not grown at the rate expected at the time of purchase.

D’Souza concluded:

“While the Bitcoin bear market has been highly disruptive, we are optimistic that many large self-mining facilities, hosting facilities, and individual miners will survive and quickly bounce back when the market recovers.”