Mining Market Revenue Report in August 2018

Key points of this report:

Currency price: Bitcoin fell 9.4% in August, Ethereum fell 34.8%

Total network computing power: Bitcoin increased by 17.8%, Ethereum decreased by 3.3%

Mining machine prices: continued decline

Mining machine payback period analysis

1. Introduction

This report provides the changes in the payback period of major Bitcoin and Ethereum mining machines. The shorter the payback period, the better the current market's money-making effect, and the higher the possibility of potential large capital entering the mining market. When the mining income continues to be unable to cover its costs, a large number of miners will choose to shut down the mining machines, which will then lead to the occurrence of "mining accidents".

There are three main factors that affect the payback period of miners: coin price, total network computing power, and mining machine price.

2. Currency price: Bitcoin fell 9.4% in August, and Ethereum fell 34.8%

In August (August 1, 2018 - August 31, 2018), the total market value of global blockchain assets showed an overall downward trend. In mid-August, the market fell below the $200 billion mark. With the heavyweight currencies represented by Bitcoin stopping the decline, it then stabilized and slowly climbed. The closing price was $228.4 billion, down $49.4 billion from the opening price of $277.8 billion, a drop of 17.8%.

This month, the prices of Bitcoin and Ethereum fell to varying degrees. Bitcoin opened at $7,769.04, reached a high of $7,769.04, reached a low of $5,971.05, and closed at $7,037.58, with an overall drop of $731.46, or 9.4%. Ethereum opened at $433.87, reached a high of $435.46, reached a low of $254.65, and closed at $283.00, with an overall drop of 34.8%.

Generally speaking, a drop in coin prices will lead to a longer payback period for mining machines.

Figure 1. Bitcoin price trend in the past three months

Source: CoinMarketCap, TokenMania

Figure 2. Ethereum price trend in the past three months

Source: CoinMarketCap, TokenMania

3. Total network computing power: Bitcoin increased by 17.8%, Ethereum decreased by 3.3%

In theory, the proportion of computing power controlled by miners in the entire network determines the success rate of their mining. The higher the proportion, the greater the possibility of miners receiving rewards. Under the same conditions, an increase in the computing power of the entire network will lead to a relative increase in the difficulty of mining for miners.

Below are the changes in Bitcoin and Ethereum's total network computing power over the past three months:

Figure 3. Changes in BTC network computing power in the past three months

Image source: BitInfochats, TokenMania

In August, the total computing power of the Bitcoin network increased by 17.8% from 44.73E at the beginning of the month to 52.68E, a decrease of 2 percentage points from July. The lowest value of the computing power during the period was 40.86E, the highest value was 57.54E, and the maximum fluctuation reached 40.8%, a decrease of 3 percentage points from July.

Figure 4. Changes in ETH network computing power in the past three months

Image source: BitInfochats, TokenMania

In August, the computing power of the Ethereum network turned from an increase to a decrease, falling 3.3% from 287.12T at the beginning of the month to 277.54T. The lowest value of the computing power during the period was 277.54T, the highest value was 295.9T, and the maximum fluctuation was 6.6%, a decrease of 4 percentage points from the previous month.

Overall, the growth rates of Bitcoin and Ethereum hashrate are both declining, and Ethereum is even negative. This is largely related to the market decline in August. A small number of weak miners may have left the market first because they cannot afford the mining costs.

Figure 5. Changes in BTC network computing power in the past year

Image source: BitInfochats, TokenMania

Figure 6. Changes in ETH network computing power in the past year

Image source: BitInfochats, TokenMania

Looking at the time dimension in a longer time frame, we find that the fluctuation range of Bitcoin’s computing power has significantly increased in the past three months, but the overall trend of computing power is still in a state of steady growth. Ethereum’s computing power has been fluctuating around 280Th/s since March 2018, and its computing power growth is obviously weak.

【Note】1T=10^12Hash/s;1E=10^18Hash/s

4. Mining machine prices: continued to fall

According to Bitmain's official website, the prices of several Bitmain mining machines have dropped to varying degrees in August. The prices of S9i and S9j mining machines have dropped to 3,550 yuan, with price cuts of 550 yuan and 750 yuan respectively. A new water-cooled mining machine S9 Hydro was launched, with a standalone price of 5,600 yuan and a fully equipped price of 7,300 yuan.

Due to the different algorithms, Ethereum currently uses GPU mining machines, whose core components are customized mining motherboards equipped with 6 to 12 graphics cards. There are many types of graphics cards on the market, and their performance varies, but the mainstream ones are AMD's RX series and NVIDIA's GTX series graphics cards.

Figure 7. Recent price trends of RX570 graphics cards

Source: Tmall, TokenMania

Figure 8. Recent price trends of GTX1070Ti graphics cards

Source: Tmall, TokenMania

As can be seen from the above figure, the price of graphics cards is highly correlated with the trend of digital currency market. After reaching a high point in January this year, the price continued to fall. In August, the price of RX570 graphics card was 1,328 yuan, down 190 yuan from July, a drop of 13%. The price of GTX1070Ti remained in the price range of 3,500 yuan to 4,000 yuan, but according to the high price in February this year, it also fell by 25%.

Since graphics cards are not specifically designed for mining, their prices are less affected by miners than BTC ASIC mining machines, but on the demand side, miners' demand is one of the important reference factors.

The decline in mining machine prices is mainly due to the following three reasons:

Market downturn

Mining machine iteration

Manufacturers seek to go public

The sluggish market has weakened the enthusiasm of miners to purchase mining machines on the demand side, as it means a longer payback period. The expected launch of new mining machines (such as the Avalon A9 series) and the competition among the three major domestic mining machine manufacturers (Bitmain, Canaan Creative, and Ebang International) to seize the market in order to go public have weakened the price of mining machines on the supply side.

5. Analysis of mining machine payback period

As of the statistical date of the report (September 7, 2018), the price of Bitcoin was 44,138 yuan, and the price of Ethereum was 1,535 yuan; the computing power of the Bitcoin network was 50.41 Ehash/s, and the computing power of the Ethereum network was 274.84 Thash/s. Assuming that the electricity fee is uniformly 0.45 yuan, then

Figure 9. Comparison of BTC mining machine payback period

Source: TokenMania

Figure 10. Comparison of payback periods for ETH mining machines (all 6-chip machines)

Source: TokenMania

[Note] The above payback period is a static payback period under an ideal environment, and the reward of mining fee is excluded. The actual payback period depends on the mining deployment conditions.

When the daily mining profit of a mining machine is lower than the daily electricity cost of the mining machine, the coin price at this time is called the shutdown coin price.

Overall, the average payback period for Bitcoin mining machines is 462 days, the average shutdown price is 29,109 yuan, and the current price is still 34% lower than the average shutdown price. The average payback period for Ethereum mining machines is 1,672 days, the average shutdown price is 843, and the current price is still 45% lower than the average shutdown price.

6. Conclusion

The income from mining is in the currency standard, but the cost expenditure of miners is in the form of fiat currency. The contradiction between the exchange rates of the two has led miners to choose to open short orders in the futures market to lock in the income from mining. This practice is also very common in the traditional precious metal mining industry. In a bull market, such hedging behavior often decreases due to the expectation of rising currency prices, but as the market turns bearish, such behavior will gradually increase. From the proportion of trading volume of mainstream exchanges in the figure below, it can be seen that the recent proportion of BitMEX exchange's trading volume in mainstream exchanges (sky blue part) clearly occupies the first place. Of course, in addition to miners, there are arbitrageurs and investors in the futures market. However, from the perspective of stability, the demand for miners should not be underestimated.

Figure 11. Changes in trading volume share of the eight major exchanges

Source: TokenMania

The more the price of the currency falls, the more short positions miners have. The large discount in the futures market drives the spot market down, and the miners give rise to a negative feedback mechanism for the price of the currency in an unexpected way. This situation is undoubtedly worse for ETH. In the bull market, a large number of projects raised a large amount of ETH by relying on the convenient fundraising attribute of ETH. In order to maintain daily operations, the team has the need for legal currency expenditures. Like miners, these project parties also need futures hedging to lock in part of the cost expenditure. In the bear market, such behavior has accelerated the decline of the currency price as the demand for ETH weakens.

When more and more mining machines are shut down, the cost of miners will also decrease, which will reduce the number of short orders in the market, which is one of the important factors supporting the price of coins. Judging from the slowdown in the growth of computing power or even negative growth, perhaps all this has already begun to show.

Mining accidents are filters for believers, and currency prices are the last straw that breaks the camel's back.

Source: TAMC Research Institute