Research: the impact of Bitcoin on the complexity of the network and the profitability of mining

The BitMEX analytical department presented a new report analyzing the impact of Bitcoin price reduction on the mining industry, as well as examining the implications of the recent hardfork Bitcoin Cash for the overall market condition.

Overall picture

Since the beginning of November, the price of Bitcoin has fallen by about 45%, while the network hashrate has dropped by about 31% over the same period. According to analysts, the latter figure corresponds to approximately 1.3 million disconnected devices Bitmain S9. Against the background of falling prices, the mining industry may thus experience considerable pressure at the moment.

It is also noted that the fall in prices led to two significant decreases in the complexity of mining Bitcoin – 7.4% when recalculated on November 16 and 15.1% on December 3. The first decline was strongest since January 2013, the second – the most significant since October 2011.

Miners daily income and cost

Miner’s Bitcoin network revenues fell from about $ 13 million per day in early November to about $ 6 million per day as of early December. Due to the mechanism for recalculating complexity, this reduction in the reward received was even more significant than the fall in price.

For the six-day period, the completion of which was on December 3, the daily average was by 21.8% less than the 144 blocks expected. This is due to the fact that miners left the network before the next recalculation of complexity, therefore, there were fewer blocks. Thus, in addition to falling prices, the miners' remuneration was 21.8% less.

Bitcoin – daily incomes of miners and expenses on electricity ($ million at a price of US $ 0.05 per KWH, Bitmain S9) (Source: BitMEX Research, Poloniex)

Bitcoin Cash ABC – daily income of miners and expenses for electricity ($ million at a price of US $ 0.05 per KWH, Bitmain S9) (Source: BitMEX Research, Poloniex)

Ethereum – Miners' daily incomes and electricity costs ($ million at a price of US $ 0.05 per KWH, 32Mh / s at 200W) (Source: BitMEX Research, Poloniex)

Profitability of mining

The graph below shows that before the recent price collapse, the gross profit margin of the industry was about 50%, but after it, this figure dropped to about 30% for Bitcoin and 15% for Ethereum.

During this period, Ethereum hashrate fell by only 20%, much less than that of Bitcoin, but the price reduction turned out to be more significant – 54%. Thus, the decrease in the profitability of mining turned out to be more significant for Ethereum. The reasons for this are not fully known, but analysts suggest that this may be explained, for example, by the fact that among the miners of the ether there are more of those who view this type of activity more as a hobby, paying less attention to profitability.

Returning to the graph above, the researchers note that the profitability of mining Bitcoin Cash became negative due to the division of the chain into two chains – Bitcoin Cash ABC and Bitcoin Cash SV, when in the fight for the hashrate representatives of both camps mined themselves at a loss.

10 days after hardforka, November 25, the profitability of mining Bitcoin Cash ABC went up sharply, reaching almost the same level as that of Bitcoin. This moment, according to BitMEX Research, can be considered the end of the “hashrate war”, which turned out to be completely meaningless: as a result, the price of these two assets did not have a significant impact.

The latest data, which is presented in the table below, shows that both sides are again close to parity in terms of the hashrate, which indicates the possibility of starting a new period when mining will be at a loss.

The bitcoin cash hashrate dropping down to more reasonable levels. $ 6m total loss per unit (at assuming energy costs) or $ 18m per total. ABC appears appreciating price appreciation pic.twitter.com/vqQWNa8b5b

– BitMEX Research (@BitMEXResearch) December 10, 2018

The researchers note that this analysis takes into account only the cost of electricity – taking into account other costs, the mining of the cryptocurrencies considered may turn out to be unprofitable.

Reasons for the collapse of the market

According to analysts, there was a lot of speculation about the reasons for the recent collapse of the market, and one of the reasons was that some miners began selling Bitcoin to finance the hashrate war in the Bitcoin Cash network. At the same time, according to the monitoring platform Boltzmann , an unusually large sale of bitcoins was recorded on November 12, that is, a few days before the BCH hard forks.

Miner expenses against bitcoin prices (Source: Boltzmann)

Conclusion

Despite the fact that miner's sale of bitcoins to cover the cost of hash rates on the Bitcoin Cash network could have been one of the reasons for the market decline, BitMEX analysts insist that this should not be exaggerated. According to them, in a bearish market, prices not only decrease regardless of news and investment flows, but tend to decrease against the background of empty or negative news, but can also ignore positive news. In a bull market, the opposite happens.

Be that as it may, the researchers conclude, although the situation for the mining industry can really be very difficult, for miners with lower costs, it can be better than many people expect.