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The cryptographic market of a year ago seems to have had a negative impact on the profitability of cryptocurrency mines. Despite this, the Bitcoin miners managed to generate profits of $ 4.7 billion in the first six months of 2018. The growing competition between the large mining basins and the growing difficulty of the Bitcoin algorithm make the profitability of the first cryptocurrency less profitable and weighs the balance against small players.
The miners turn off the machines and the card makers suffer losses. In particular, representatives of AMD, whose last quarter fiscal report, published on October 24th, showed that revenues from the sale of graphics processing units (GPUs) of data mining were "negligible". Presumably, even Nvidia and Bitmain could be in the same situation and at this point, investors, miners and GPU producers are probably wondering what it will take to shake the cryptocurrency market from its current malaise.
The Golden Rush 2017
A year ago, the situation on the mining hardware market was different. Jon Peddie's research shows that in 2017 the miners have purchased 3 million devices for over 700 million dollars, with Bitmain with the estimated quota of 3-4 billion dollars, which has exceeded the revenues of Nvidia and AMD for the same period.
The increase in the supply of GPU cards, which was observed in the second quarter of last year, can be mainly linked to the growing demand for Minereum miners (ETH), according to Jon Peddie Research. A similar jump has already been seen in 2013 following a massive purchase of Bitcoin and Litecoin by miners.
The application of Ethereum has led to an evolution in the GPU market while professional Bitcoin miners passed from GPUs to customized ASICs, resulting in a further surplus of mining graphics cards on the secondary market.
In the face of increasing demand, mining equipment prices have risen sharply – the cost of flagship chips has increased by 25%, with Nvidia's GeForce 1080, which has captured over $ 1,000 during the market's peak.
2018: go under with a crypt
From the Bitcoin invasion in January, when in a single month it lost half its value from the $ 20,000 limit, the situation for the miners has worsened 一 the price of the currency has broken the sign of $ 5,800 and card makers announced the decline in revenue from sales of mining hardware.
These factors led to lower prices for extraction devices. As previously reported by Cointelegraph, in July the AMD six-pack RX 580 OEM was sold for $ 2,500, while in April it was available for $ 3,600. An Nvidia GeForce GTX 1080 Founders Edition, an 8 GB GDDR5X PCI Express 3.0 graphics card, was sold at a price of $ 1,050 in the same month, although in July its price did not exceed $ 709.
The rich get richer – the prospect of miners
Despite the collapse of the cryptocurrency market, the revenues of Bitcoin miners in the first three quarters of 2018 amounted to $ 4.7 billion, with a monthly profit of 57,000 BTC. For example, the entire past year has led users to $ 1.4 billion less. However, the ever increasing competition and increasing complexity of the network make Bitcoin mining less profitable, especially for small players, as reported in the latest study carried out by the analytical company Diar.
However, analysts say September was the first month in which private miners' profits went negative due to an increase in computing power.
According to Diar, only large pools can still make money from Bitcoin extraction:
"With large, low-cost mining operations, with a gross profit of 50-60% from Bitcoin's revenues, the market still has plenty of room to grow and profit to squeeze in. But the extraction of Bitcoin, at least for now, and most likely in the future, it has moved into the field of bigger players with deep pockets. "
Miners' total income has also not been on the upswing, as the 2018 statistics ($ 11.5 million) are 21% lower than $ 14.7 million in the same period last year and significantly lower the maximum income of $ 53 million observed during the High Yield Era of the investment program (HYIP) in mid-December 2017.
Bitcoin miners may have run a losing business since the end of September 一 this conclusion was made by the analyst Barclay James, who calculated a special formula to find the price of Bitcoin to which the miners they would no longer generate sufficient profits to cover operating costs. The value obtained is between $ 6,400-6,500 per currency. A lower threshold was offered by the other analytical agency called Fundstrat, which analysts have suggested that most miners could leave their plants if Bitcoin were to lose $ 3,000 – $ 4000 for Bitcoin.
The massive abandonment of the market by the owners of small mining companies in China following a prolonged "down" cryptocurrency market speaks of the decline in the interest of private miners.
One of these miners said that in the second half of 2017, when cryptocurrency prices reached a historic level, he invested hundreds of thousands of yuan in the purchase of almost a hundred devices. Expectations have not been met, the miner confesses:
"In the middle of June, the profit margin of my mining business had decreased by 90% One of my friends who also mine has suffered more, almost losing all his investment."
AMD -22 percent, Nvidia -30 percent: why their stocks decreased?
The diminishing interest of miners to graphic cards is not the only reason for the decline in the market for the production of mining equipment, explained the analysts of Jon Peddie Research. The company published its report on Q2 2018 containing data on the GPU market in general and in particular on the segment of discrete video cards. The April-June data were more modest compared to the last quarter statistics, which is also explained by the seasonal factor – the figures for the second quarter are usually lower than those of the first – as analysts suggested.
Overall GPU shipments increased by 0.2 percent from the last quarter. AMD shipments decreased by 1%, while Nvidia shipments by -7.5%, while Intel increased shipments by 2.6%.
The negative trend is also demonstrated by numbers from year to year. Total GPU shipments were down 3.3 percent, with discrete GPUs down -4 percent from the last quarter.
Has the fall in the cryptocurrency market affected the stock indices of the giants of hardware hardware? A closer look at the graphs of AMD and Nvidia shows that the decline in the value of shares was probably caused by a decrease in sales, rather than by the correction of the cryptocurrency market.
AMD stocks fell by 9%, after October 26, the company published a quarterly report. Within a month, company stock prices fell by almost 48% and experts believe that the main reason behind this decline was the fall of miners' interest in video cards.
Kinngai Chan, an analyst at the Summit Insights Group, told Reuters that "AMD has too high exposure to the crypto-currency market", which means that miner acquisitions have significantly increased company revenues .
The AMD tax report also demonstrated this the actual decline in revenue of $ 150 million instead of expected $ 50 million. The surplus of GPU cards was formed due to the cryptocurrency boom in the first half of the year, which forced AMD to "accelerate" the production of core products.
Although mining is a "very low percentage" of the company's overall business, according to AMD CEO Lisa Su, on November 5 announced the partnership with seven major technology companies to produce eight new mining cryptocurrency with "Ultimate stability", "Performance 24/7" and "Quality at company level". The main reason for this production is that it meets the various aspirations of "innovative blockchain platforms", which may also be related to the company's expectations on the sales of the GPU for miners in 2019.
AMD is not the only chip maker that shares have been affected by the state of cryptocurrency markets. NvidiaThe shares declined 4% after the announcement of the Q3 report estimates of August 16, which showed that revenue from video card sales in the second quarter of 2018 was $ 18 million instead of the expected $ 100 million . In total, the October drop was around 36%, with stock prices falling from $ 289 on October 1 to $ 185 on October 29th. Colette Kress, Nvidia's Chief Financial Officer, told the Wall Street Journal:
"Considering that we previously predicted cryptocurrency to be significant for the year, we are not projecting contributions in the future."
The third-quarter final fiscal report, published by the company on November 15, revealed that Nvidia's GPU application among cryptographic miners has been exhausted, as reported by Cointelegraph. The general revenue for the third quarter includes $ 3.18 billion, or 21% more than the $ 2.64 billion last yearand 2% more than the value of the previous quarter. However, the last numbers were less than the expected company. In August, Nvidia analysts predicted that its third-quarter revenue would be between $ 3.19 billion and $ 3.32 billion.
The founder of the producer, Jensen Huang, added that the company's revenues for the next year could be reconsidered because "the short-term results reflect the excess inventory of the channels after the cryptocurrency boom, which will be correct".
The decrease in revenues may have been driven by Bitmain's increased competitiveness. In March, the Wall Street company Susquehanna changed the rating of AMD from neutral to negative and lowered the price forecasts for the shares of the GPU processor manufacturer Nvidia, citing the growing competition of Bitmain's ETH mining ASICs. The new target price for AMD shares was revised from $ 13.00 to $ 7.50 and Nvidia's forecasts were reduced from $ 215 to $ 200 at the closing of the market on Friday.
The dominance of ETH ASIC miners could negatively affect AMD and Nvidia, according to analyst Christopher Rolland of Susquehanna Financial, a company whose graphic cards for ETH extraction comprise 20 to 10 percent of the company's respected revenues .
Bitmain & # 39; s Antminer has become cheaper
While GPU prices have not fallen significantly, Bitmain has deliberately sold its last and the Bitcoin ASIC Antminer S9 flagcoin at a discount, according to reports from BitMEX Research.
In total, in the last year and in the first quarter of 2018, Bitmain sold approximately two million Antminer S9 models. According to the researchers, who calculated the company's gross profit margin in 2017 and the indicative cost of each ASIC chip, Bitmain's profit margin for Antminer S9 was negative with a value of 11.6 percent.
Cryptographic analyst, Samson Mow, critic of Bitmain's business, has calculated Antminer S9's prices had dropped by 85% and the company had lost $ 600-700 million in the second quarter.
Why is Bitmain raising capital so fast and showing only first-quarter results to pre-IPO investors? Now we are ready for Q3. The reason is that the second quarter was a disaster. Bitmain is sitting on a massive $ 1.24 billion in inventory and S9 prices fell about 85%! Second quarter losses are between $ 600-700 million. pic.twitter.com/fVYcDRTvBp
– Samson Mow (@Excellion) August 13, 2018
However, the fall in prices has nothing to do with the decline in miners' interest – the researchers suggest that the company employed a strategy to overcome competition by underestimating its products:
"These low prices are probably a deliberate strategy on the part of Bitmain to squeeze the competition causing them to drop sales and hence financial difficulties, and we believe that this is the key to one of the main driving forces behind the IPO decision. Successful can increase the available firepower to continue this strategy and eliminate an advantage rivals could have by making their IPOs first. "
A more serious threat that can affect the profitability of ASIC miners and the mining giant's sales are the tiny coin forks, to which more and more companies have taken part. In 2018, at least two projects have held out to protect their networks from 51% attacks, and this threatens Bitmain's monopoly in the market, with two of them planning the operation in the near future.
In April, the Monero fork deactivated mining with Antminer X3, in October, both disabled Antminer A3. Their updates are followed by programmed forks of Bitcoin Cash (BCH) (15 November) and Ethereum (presumably in January 2019), which could potentially devalue Antminer S9 and E3, designed for the extraction of these coins.
To strengthen its position in the market, Bitmain continues to compete with other mining hardware manufacturers. On November 5th, the company released two new Antminer models, equipped with next-generation ASIC chips to ensure "industry-leading hashrates". Announced October 22, the update of the firmware "Overt ASICBoost", designed to increase the efficiency of mining devices, together with the implementation of 90,000 Antminers S9 performed by Bitmain to obtain the domain of the pool of mining before the fork of Bitcoin Cash, potentially increase the company's third quarter revenue 2018.
Other GPUs
The drop in demand is also confirmed by the manufacturers of smaller video cards. Gigabyte recently released a financial report for the last month, which showed that its revenues in June decreased by 31% compared to last year and by 30% compared to the previous month. Furthermore, revenues for the second quarter of 2018 decreased by 33% compared to the first, according to the report.
A similar situation faces TUL Corporation, which produces video cards under the PowerColor brand. The company's earnings for June were 28% lower than in May. For the entire second quarter, the decline was 59% compared to the first quarter. The numbers are significant, as up to 95 percent of the company's revenue comes directly from the sale of AMD video cards.
The opposite financial results were reported by the Canadian mining hardware manufacturer Hut 8, November 8th. As stated in its tax document, company revenue reached a record of $ 13.5 million for the third quarter (126% more than in the same period of 2017) and $ 27.7 million for last three quarters.
Hut 8 has attributed the increase to its establishment of sixteen Bitbox BlockBoxes in September at its mining facility in the City of Medicine Hat, for a total of 56 BlockBoxes at that site. Each BlockBox is said to contain 176 data mining servers and has a hashrate of 13.7 Ph / s.
Among the reasons that the company offers for lower financial results in 2017, there is the fall in prices of BTC, the increase in competition and the record high temperatures in Alberta. Hut 8 also expects that the efficiency of ASIC chips will increase during the colder months, which will improve performance in the next quarter.
Another producer said that the profit received in Q3 2018 exceeded that of the same period last year, despite its revenues for mining cryptocurrency activities decreased due to the "deterioration of the external environment" and the "increasing cost of depreciation".
On November 12th, Japanese IT giant Internet OGM published its third-quarter tax report revealing the company's cryptography business, including the production of mining hardware and the encryption operation, within a year of launching has produced revenue for about $ 22.8 million.
Expectations on the market of mining producers
If the data provided by researchers and analysts are to be believed, the Bitcoin miners have made a significant loss since June and many people have completely abandoned the practice. The growing power of hash of BTC will remain profitable for those who are able to extract on an industrial scale or operate in countries where operational and energy costs are favorable. The survival of Bitcoin and the hashrate network remain between 40 and 50 million. This shows that there is still significant activity in the mining industry of global cryptocurrency and that miners' confidence may return sooner or later. Small-scale miners are escaping in droves and the distribution of players is rebalancing with the emergence and consolidation of the mines, the experts of Diar.co suggest:
"Bitcoin mining has, at least for now, and most likely in the future, moved into the field of bigger players with deep pockets."
Therefore, "large low-cost mining operations of electricity, with a gross profit of 50-60 percent from Bitcoin's revenues" will continue to make profits and analysts believe that "the market still has plenty of room for growth and profits. to squeeze "".
Even Jon Peddie Research does not provide a significant reduction in the price of video cards:
"We believe that concerns about the decline in GPU demand for the production of etereum and other cryptocurrencies, as well as the relevance and impact of these processes on company profitability, are very exaggerated and that Nvidia will be probably able to overcome these "hard" times by focusing on his other directions. "
At present, despite the significant drop in the price of the main cryptocurrencies, the cryptocurrency demand remains relatively high, as noted in the increase in the hash rate of the Bitcoin network and in the expansion of the activities of Samsung, GMO and Bitmain. , which activity was not influenced by shipping rates and regulations.
The last quarter of 2018 and 2019 could see the continuation of Initial Public Offerings (IPO), which one at a time were announced by Canaan Creative, Ebang Communication, Bitmain and Bitfury this year.
The estimated $ 20 billion that these companies should increase to the IPO stages in total, and the values of $ 14 billion and $ 80 million of Bitmain and Bitfury have already reached during their first round of financing, suggest that producers ASIC miners could have an alternative way of monetization even in the case of falling sales.
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