Chinese Miners Forced to Shut Down Their Businesses, As Cryptocurrency Prices Plummet

Omar Faridi
  • Cryptocurrency mining is no longer profitable for operators of small mining farms in China.
  • Local residents reveal they were forced to shut down their mining operations due to the extended crypto bear market.

A Chinese cryptocurrency miner with the surname Li recently revealed that he had invested “hundreds of thousands” of Chinese yuan (CNY) to purchase nearly a hundred mining rigs during the second half of 2017 - when digital currency prices reached their all-time highs.

Li also resigned from his job at a small financial firm and began focusing on his crypto mining business. As many digital asset investors have now admitted, Li had hoped to make some “quick and easy” money by mining Bitcoin (BTC).

Cryptocurrencies Drop 99% From All-Time High

However, the prices of all major cryptocurrencies have dropped drastically - with some popular crypto assets such as Nxt and Qtum losing as much as 99% of their value from the time when the market capitalization of the crypto market exceeded $800 billion (in January 2018).

Because of the huge drop in cryptocurrency prices, Li said:

By mid-June, my mining business’s profit margin had dropped by 90%. One of my friends who also mines altcoins suffered more, nearly losing all his investment.

Chinese Miner

After suffering huge financial losses, Li was forced to shut down his mining farm and he also tried to sell his mining rigs by posting an ad on an e-commerce platform for second-hand electronic hardware items.

However, Li struggled to find buyers for his expensive mining equipment as he claims to have not been able to find a party that has made a reasonable offer - even though it has now been three months since he posted the ad.

Useless Piles Of Scrap Metal

The Chinese resident also said he was only able to sell two mining machines for just 700 yuan (appr. $105). When he tried to sell the mining hardware equipment to other local electronics dealers, they also refused to take them.

At the time when Li had purchased the crypto miners, they were in very high demand and hard to get, however, he now describes them as useless piles of scrap metal that lie covered in thick layers of dust.

Another Chinese miner with the surname Ma revealed that he had to close down his mining farm as well, due to the extended crypto bear market. Ma said he then sold four of his mining rigs for only 850 yuan (appr. $125) - which is less than 25 percent of what a new machine costs.

Commenting on the significant drop in prices of mining hardware, Ma said that devices which had been introduced in early 2018 with computational [capacity] of “10 TH/s per chip” now only trade for around 1,000 yuan (appr. $150).

New Mining Equipment Cheaper Than Used Hardware

Also, mining equipment developed using newer technologies, which are now increasingly being offered by relatively small hardware manufacturers, can be purchased brand new for even cheaper rates than used equipment of equivalent computational power.

When crypto prices skyrocketed, the Chinese residents said that vendors selling digital currency miners could be found everywhere in Huaqiangbei, which is a popular electronics hub in Shenzhen, China.

A Shenzhen-based vendor said:

All of mining machines are [now] sold at a discount of 30%. If you want to buy more than one, we can offer a better price and will give you more power cables and associated accessories for free.

Chinese Vendor

Liang Sizhong, a local PC repair shop owner, said:

Mining rig retailers and miners, the sellers of second-hand miner components ... are … under tons of pressure as the price of used graphic cards [has dropped] sharply. [In most cases], we do not collect used devices for recycling.

Liang Sizhong

Top Crypto Trends for 2019

Cryptocurrencies are a new form of asset that are designed to work as a medium of exchange like any other currency. Bitcoin, the flagship cryptocurrency, paved the way in 2009, and now there are more than 2,000 cryptocurrencies available according to CryptoCompare. Although it’s been a decade since Bitcoin’s launch, cryptocurrency has yet to achieve mass adoption as it faces many challenges from within and without. Still, many financial analysts are confident that prices will soar as institutional investment flows in 2019 and beyond.

Cryptoassets hit an incredible peak in December 2017 when the Bitcoin price reached $20,000. 2018 however, saw prices collapse across the board as the enthusiasm of 2017 waned with failed ICOs and inactive projects.

One possible factor that contributed to the slump is that US regulators are yet to approve an ETF (Exchange Traded Fund) application. Another project that is highly anticipated to move markets is the new Bakkt Exchange, from NYSE parent company ICE (Intercontinental Exchange) which will likely herald a new era of institutional investment.

There is however a lot of positive development within the cryptoverse itself. In 2019, some new trends are emerging which observers should monitor closely, as they have the potential to foster enormous growth. Let’s take a look at some of these new positive trends.

Leaner Companies

We have seen many failed cryptocurrency projects in the last 2 years, and one reason for their failure was lack of funding. Crypto giants like Bitmain Technologies, ShapeShift, and many blockchain-based social media platforms like Steemitwere forced to reduce their staff because of the lack of investment in this sector.

These companies are the victims of the prolonged bear market, and they were forced to shelve their expansion plans because of poor financial planning and many other mismanagement issues. The new trend therefore, is for crypto startups is to cut their operational costs to survive in the crypto ecosystem. These new, leaner companies may indicate a more resilient industry in the long-term.

Scalability

Another primary issue is scalability, and it seems to still be a problem in 2019. Ethereum for example, had to postpone its Constantinople upgrade due to a serious, smart contract vulnerability threat. The update was scheduled to launch at the start of this year but was delayed  after an independent research firm detected the flaw.

There are many new projects surfacing that claim to work on improved algorithms or protocols. These algorithms and protocols are not fully developed, but promise a hybrid of proof of stake and work. Developers on projects around the world are working hard on the problems of scalability, and if progress is made, 2019 may set the stage for broader crypto adoption.

More User-Friendly Apps

The Lightning Network is seeing a great deal of activity in 2019 in its role as a second layer payment feature. Still, developers are trying to further improve the LN protocol to make it more secure, faster and cheaper to conduct crypto transactions. As work continues, the Lightning Network is turning Bitcoin into a faster and cost-effective medium of exchange. You can expect more development in LN protocol in 2019 as developers are creating more apps that are both intuitive and user-friendly. You can find the best trading software reviews here to learn more about these apps.

Security Tokens Vs ICOs

After regulatory authorities began targeting Initial Coin Offerings (ICO), Security Tokens - which explicitly acknowledge their regulatory obligations - are being launched throughout the globe.

The new name also seeks to avoid much of the negative stigma of the ICO, which has become associated with failed projects and even outright scams. Jurisdictions such as Malta, Switzerland and Singapore are more accommodating towards Security Token sales, adding to investor confidence in this newer token model.

Education

Another obstacle for the crypto ecosystem is lack of educational resources. More efforts have been made recently to make crypto education more accessible. New York University for example has taken the initiative by introducing a graduate level certification in digital currencies. Now that prestigious institutions such as NYU and the London School of Economics begin to spread the word about cryptoassets, the industry is further cementing itself in the public consciousness.

The Availability of Bitcoin ATMs

2019 may see the introduction of Bitcoin ATMs in several major cities in the United States.

With 30 new machines installed in Chicago, and over 100 in Philadelphia, prospects are looking good. These new ATMs are solely for Bitcoin transactions, but some regular ATMs in New York are now also offering crypto services. These new services require an account with  Bitcoin payment provider LibertyX, and users can purchase up to $3,000 worth of Bitcoin daily using a debit card.

Conclusion

Cryptocurrency looks set once again in 2019 to gain traction. While the industry is young, and in many ways still recovering from the spectacular boom and bust of 2017 and 2018, it still inspires a great deal of enthusiasm and interest globally. These trends in 2019 will be closely watched.