Bitcoin prices continue to fall, but miners are still expanding on a large scale?

Original article: With Bitcoin Sinking, Crypto Miners Just Dig Deeper Translator: Qi Ming

Bitcoin prices are falling, but mining activity has not decreased.

The decline in bitcoin prices and the rise in hash rate, a measure of computing power, show the complexity of the economics of cryptocurrency mining. The rising hash rate means that mining is still profitable for miners and they don't have to quit. This runs counter to speculation that prices have fallen below the break-even point.

This may also reflect how complicated Bitcoin mining has become since the price of Bitcoin rose 1,400% last year.

Although it attracted a considerable number of amateur miners to mine in basements at the time, the huge profits also attracted large miners to increase their investment, purchase chips with higher computing power, and mine in places with cheap electricity. When the price of Bitcoin fell to $6,000, smaller companies were squeezed out.

So, how much does it cost to mine Bitcoin? As previously reported, a subsidiary of Crescent Electric Supply Company in the United States studied the cost of mining 1 Bitcoin in 115 countries based on factors such as mining difficulty at the beginning of the year. Among them, the mining cost in Venezuela was the lowest, at $531.

However, the price of Bitcoin has been on an overall downward trend this year, far below the previous high of $20,000, and mainstream digital currencies represented by ETH have been falling continuously. Many blockchain projects are unwilling to accept ETH in the cornerstone round and private placement stage. Moreover, according to Alternative.me, the market has been showing panic sentiment in recent days. Today (August 17), the panic index is 19, and the market is still at an extreme panic level.

According to this Bloomberg article on August 16, the CEO of Genesis Mining said that miners are still expanding on a large scale, especially for miners with higher efficiency, and the scale of expansion can offset the exit of miners with low efficiency.

The article points out that the competition for top technology is so fierce that miners have become the main customers of semiconductor giants such as Nvidia and TSMC. Due to these advantages, this business is concentrated in the hands of companies such as Bitmain or Bitfury.

Many analysts have tried to calculate the break-even point for miners, which may provide support for prices . Fundstrat Global Advisors, a bullish research firm, predicts that the price of Bitcoin can reach $8,000. Morgan Stanley has said that large mining farms can only make money when Bitcoin trades above $8,600, according to CNBC. Researchers at CoinShares, which provides cryptocurrency investment products, estimated in a May report that the average marginal cost of Bitcoin is $6,400. On Thursday, Bitcoin traded at about this estimated cost.

Bloomberg points out that the break-even point depends on the efficiency of miners . For example, Genesis Mining is still expanding its production capacity. CoinShares' report shows that if miners also produce equipment, they can immediately obtain cheaper hardware and can adjust the price of their products to maximize profits. Its researchers said that the efficiency of hardware is rapidly improving and costs are falling. Miners are getting highly competitive electricity resources (usually idle electricity resources) and are highly mobile.

Although the rapid rise in hash rate has occurred simultaneously with the rise in price in the past, the relationship between the two is not that simple. In theory, the increasing hash rate should push up the price because it means a higher cost per token. However, due to the previous capacity expansion, the computing power is increasing, which is a sunk cost for miners.