According to a report (published today) by BitMEX Research, the research arm of crypto derivatives exchange BitMEX, since the start of November 2018, the price of Bitcoin (BTC) has come down around 45% and its hashrate has fallen around 31% (the equivalent of 1.3 million Bitmain S9 miners being switched off). Although the situation appears quite bleak for the mining industry, BitMEX’s research team believes that for some miners (those with lower costs), life may not be as difficult as some people think.

Here are the main highlights from the report:

  • “The prices have so far caused two large downward difficulty adjustments to Bitcoin, 7.4% and 15.1%, on 16th November and 3rd December, respectively.”
  • “The 7.4% adjustment was the largest since January 2013 and the 15.1% adjustment was the largest since October 2011.”
  • The following chart shows how, since 1 November 2018, the daily chainwork has gone down in line with Bitcoin’s falling price:

BitMEX Chart 1.png

  • “Bitcoin mining industry revenue has fallen from around $13 million per day at the start of November to around $6 million per day, at the start of December.”
  • “This drop in incentives was even larger than the fall in the Bitcoin price, due to a delay in the way difficulty adjusts.”
  • “In the six-day period ending 3rd December, 21.8% fewer blocks than the expected 144 per day were found, as miners left the network before the difficulty adjusted, and as a result, fewer blocks were found.”
  • “… prior to the recent crash, the industry was making gross profit margins of around 50% (these figures assume electricity is the only cost included in gross profits), while after the price crash, this fell to around 30% for Bitcoin and 15% for Ethereum.”
  • The following chart shows how miners’ gross profit margins for BTC, BCH (the ABC variant of Bitcoin Cash), and ETH have fallen since November 1st:

BitMEX Chart 2.png

  • Since November 1st, “the Ethereum hashrate has only fallen by 20%, much lower than Bitcoin, (representing around 1.5 million high-end graphics cards), while the price decline has been more significant than Bitcoin, at 54%. Therefore, gross profit margins have declined even more sharply for Ethereum.” One possible reason gven for this phenomenon is that “Ethereum miners are more hobbyist minded and less profit focused.”
  • It is important to ntoe that when estimating gross profits, the research team’s analysis only takes into account electricity costs (assumed to be around US$0.05 per KWH) even though “miners have other costs, such as the capital investment in the machinery as well as maintenance costs and building costs,” which means that “the recent price crash is likely to have sent almost all the miners into the red.”
  • With regard to electricity costs, the report points out that these costs are not the same for all miners, and that because of these cost variances, the Bitcoin network “continues to function smoothly despite large sudden price declines.”
  • “While it may be true that mining pools selling Bitcoin to fund losses in the Bitcoin Cash hashwar may have been a catalyst for the reduction in the price, we think it’s easy to overestimate the impact of this. We are in a bear market and prices are falling regardless of the news or investment flows.”
  • The report concludes that although this is a very difficult for the mining industry, for miners with lower costs “the situation may be better than people expect,” and that those miners who “acquired their equipment from Bitmain at below-cost prices, they could still be in the green, even when including depreciation and other administrative expenses.”


Featured Image Coutesy of BitMEX