CoinShares, a New York-based cryptocurrency service that provides advice and other services to investors, released a statement on the state of Bitcoin mining during global uncertainty caused by the coronavirus, before a mining report planned and more detailed in June 2020.
In it, CoinShares research director Christopher Bendiksen wrote that the current talk about a possible mining “death spiral” due to coronavirus-based blockages makes reading dramatic, but not at all based on reality.
“The ‘mining death spirals’ don’t really happen in real life,” Bendiksen wrote in the statement. “These are highly theoretical advanced cases unprecedented in the real world … Mining is here to stay.”
Confidence in the mining space and in bitcoin in general, despite the economic uncertainty in the world, is high in the company.
“Bitcoin is arguably the only financial asset that can work remotely – no one needs to go to work for bitcoin to work,” wrote Danny Masters, executive chairman of CoinShares, in an additional statement sent to Bitcoin magazine. “No one needs to fill an ATM. Although things seem bleak for everything, I can’t think of a better asset to buy than bitcoin. “
Difficulty, blocking frequency and hash rate
The cost of bitcoin mining is largely a function of difficulty – a dynamic metric determined by the protocol itself which can adjust both up and down to keep blocking times at 10 minutes on average.
Additional reading: What is Bitcoin Mining?
The difficulty has reset itself several times – sometimes dramatically following a fall in prices, as in November and December 2018 – but the network has never completely stopped or even approached closely.
“There is no price level that could increase Bitcoin’s issue rate,” reads Benedickson’s statement. “When the dust settles on the current financial crisis, the Bitcoin monetary system will have created exactly as many bitcoins as originally planned.”
In essence, adjusting the Bitcoin mining difficulty keeps the frequency of the Bitcoin block stable, regardless of the amount of total hashrate in the network.
What about the halving?
“If prices don’t go up, the hashrate will fall – and when the reduction in half hits, it will go down again,” Bendiksen wrote. “This is not a problem for Bitcoin, nor is it unprecedented.”
And it’s not always the largest bitcoin mining groups that will survive a major recession in the price of bitcoin, contrary to what you might hear. These groups will have the cheapest energy costs and the most recent and most efficient equipment.
“The halving is still in a few months and many miners are already closing their doors,” said Bendiksen in a follow-up interview with Bitcoin magazine. “So, when we divide by two, we will probably be in a completely different difficulty environment than today. Recent estimates show that up to 25% of the peak hashrate may already have been deactivated. “
While CoinShares suggests that mining after half will be different from the current and near future mining environment, Bendiksen believes the current status provides an insightful window.
“For all those who are worried about the halving, this is a perfect prelude because the end effect on minors is exactly the same,” he wrote in his statement. “Therefore, the hash dynamics we will likely see in the coming weeks will be an excellent parallel to those we may also see after the halving in May.”
Bendiksen has recognized that some of the more expensive miners may drop out after the halving, but he also sees mining companies stabilizing and growing in the foreseeable future.
Building the mining infrastructure of the future
Meanwhile, Blockstream Mining is quietly developing its mining business with facilities in Quebec, Canada and Georgia, in the United States, with more than 300 MW of energy and a thriving colocation service offering equipment, space , bandwidth and rental of electricity for minors who can benefit from cheap energy without the need to negotiate separately with local authorities.
According to Blockstream CSO Samson Mow, the company has taken steps to be ready for halving, no matter what. Despite the current turmoil, it is focused on the long term.
“For Blockstream mining operations, our electricity and operating costs are low enough that we can survive most of the miners and be the last to stand,” said Mow. Bitcoin magazine in an interview. “In addition, we have been operating bitcoins for some time and we HODL for the medium term, so lowering prices during the halving would actually have no impact for us.”
Mow noted that while it’s hard to predict the price, he thinks some ineffective miners may have to close, while most miners will be fine for half.
“I think the price of bitcoin will recover to a point where, after halving it will still be profitable to mine BTC,” said Mow. “Even if that does not happen, it is unlikely that we will see a massive drop in hashrate. Many miners are already using the latest generation of equipment and have already recovered these costs, so they only have to manage the opex [operational expenditures]. ”
— Samson Mow (@Excellion) March 19, 2020
Investors are more cautious but still interested in Bitcoin Mining
Ryan Porter, director of business development for BitOoda, a mining-focused financial services and brokerage firm, was busy answering inquiries about new mining opportunities in North America in December 2019.
Now, he says, he’s still receiving inquiries, but potential mining companies are more cautious and want to lock in competitive energy prices.
“Overall, what we see is that the miners who were well positioned to be profitable after the halving are still well positioned now, where the miners who would have needed to stop operations had to speed up those plans, “said Porter. Bitcoin magazine in a telephone interview.
“We have seen the hashrate plummet as unprofitable mining platforms are now taken offline, and conservative operators who were concerned with managing their bitcoin price risk are now looking to buy equipment at distressed prices. “
Porter is confident that the best managed mining operations with inexpensive power sources and efficient computers will survive the halving. What he sees is the next step in the evolution and maturation of the mining industry.
“Where we are starting to see a change in the planning of miners is the way they approach risk management,” he added. “We had previously engaged in discussions with miners on the implementation of BTC price hedging programs, and we have had quite a few of these companies who have contacted us in the past week to begin a real commitment to managing risks. “
The CoinShares team is confident that bitcoin and its critical mining industry will emerge from the coronavirus storm. In his interview with Bitcoin magazine, Bendiksen noted that, unlike the cash currency system, the bitcoin system is “coldly and emotionlessly managed by a network of computers according to pre-established rules”.
“These computers never need to work from home, never get sick, frightened or panicked and cannot be influenced to print money by charismatic or powerful politicians even in the most difficult times,” a he declared. “They just run their code as prescribed, no matter what is going on in the world.”
SEO title: Bitcoin Mining, Coronavirus and halving
Extract: Despite the global turmoil caused by the coronavirus and an imminent reward halved, the Bitcoin mining industry seems optimistic.
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