BitMEX Research — the research arm of the BitMEX exchange — recently released a report analyzing the effects the recent market downturn has had on the mining industry. BitMEX’s conclusions are drawn from analysis of miner profit margins and the declining hash rate in Bitcoin, among other factors.
As the 2018 bear market continues to unfold, miners are experiencing a significant amount of stress, with BitMEX identifying that mining power has fallen roughly 31 percent since November 2018, representing around 1.3 million Bitmain S9 miners.
Miner Costs and Profit Margins
Since the start of November, Bitcoin’s mining revenue has dropped from $13 million per day to $6 million per day. Due to difficulty adjustment delays — which can compound negative market sentiment –, there has been a 21.8 percent decline in mining incentives coupled with the price decline as fewer blocks were found since miners were leaving the network.
BitMEX notes that electricity costs for mining vary and miners with the highest electricity costs are likely the first to shut down their rigs.
Ethereum mining profit margins have also been impacted substantially by the bear market. Only accounting for electricity costs for miners, Ethereum mining gross profit margins fell to 15 percent, compared to Bitcoin’s 30 percent.
However, the hash rate in Ethereum has declined at a much more mild pace than Bitcoin despite a more rapid price descent. As a result, gross profit margins for Ethereum have dropped much more noticeably than in Bitcoin.
Bitcoin Cash presents an intriguing case for the correlation between price decline and mining reduction following its split into Bitcoin Cash ABC and Bitcoin Cash SV in November. Bitcoin Cash ABC emerged ahead in the proclaimed “hashwar,” but BitMEX details how uneconomical the mining following the split was and that it is likely to continue as their hash rates settle closer to each other again.
Price Decline and The Bitcoin Cash Split
There has been widespread speculation that the Bitcoin Cash hard fork led to the price decline as Bitcoin miners sold their Bitcoin to finance the hashwar between the competing chains after the split. Boltzmann — a cryptocurrency intelligence platform — highlighted to BitMEX that a significant number of Bitcoin miners had sold Bitcoin a few days before the Bitcoin Cash hard fork, particularly members of the mining pool Slushpool.
However, BitMEX establishes how it is unlikely such a move was the cause of the recent downturn in prices, as we have been in a bear market for nearly a year.
The declining Bitcoin hash rate and reduced miner profit margins are assuredly placing profound stress on the developing industry. Bitmain continues to face struggles in light of the bear market, and many miners — when taking capital costs, electricity, and operational expenses into account — are likely operating in the red at this point.
BitMEX’s report again offers some excellent insights into the overall impact that the depreciating market has on the mining sector. For now, it seems that miners with smaller electricity costs that are mining on Bitcoin may be able to remain in the green while other miners with a more considerable overhead have shut down for the short-term.
The silver lining that BitMEX’s analysis reveals is that the situation in Bitcoin mining may not be as bad as currently perceived.