When the prices of gold tanks, the miners get hurt. It's the same story in the wild world of cryptocurrencies.
Bitcoin prices, the world's leading digital currency, have plummeted by about 30% last week and touched a minimum of 13 months of about $ 4,500 (RM18,800), according to CoinMarketCap data. The total market value of cryptocurrencies has fallen to $ 148 billion (RM618 bil), which is less than a fifth of its value during the market peak in January.
A clash between Bitcoin money supporters, the most successful Bitcoin branch, has largely been attributed to the market crash. The fourth largest cryptocurrency in the world was divided into two distinct entities on November 16th between longstanding and fundamental disagreements in the community.
One day before that split, a cryptocurrency exchange based in Hong Kong, OKEx forced the early settlement of Bitcoin cash futures contracts on its platform, which is believed to have triggered the sale.
The price drop has left miners – those who process transactions in exchange for new cryptocurrency units as a reward – in a vulnerable position. It has become useless for these companies and individuals to run at least four models of Bitcoin mining machines, if they consume energy at a rate of 0.4 yuan (RM0.24) per kilowatt hour (kWh), according to the latest estimates of Beijing based on F2Pool, one of the world's largest Bitcoin mining basins.
Cryptocurrency mining has evolved from one-bedroom operation to large-scale production, undertaken by companies that use specialized systems with application-specific integrated circuits.
These miners generally agree to combine their computing power in so-called mining pools to increase their chances of winning new digital currency. They take into consideration various factors, including the difficulty of extraction – the total amount of computing power in the network – and costs such as electricity and rental rates to decide which coins to extract and where to place their plants.
The sell-off of cryptocurrency has now forced miners to remove at least four models of Bitcoin mining machines, including Antminer S7 and Antminer S9 from Bitmain Technologies and AvalonMiner 741 from Canaan Creative, because they have become too expensive to operate under current market conditions, according to the F2Pool estimates on Wednesday.
Bitmain and Canaan, headquartered in Beijing and headquartered in the eastern coastal city of Hangzhou, are the two largest cryptocurrent mining platforms in the world. These two companies, together with smaller rival Ebang International, have separately announced plans for an initial public offering in Hong Kong.
Their prospects of floating shares in the city now look bleak amid the prolonged bearish market, which has wiped out over $ 700 billion (RM2.9tril) in the total cryptocurrency value from the beginning of January. Last week, Canaan let his six-month IPO demand expire.
The latest dip in cryptocurrency prices has started to claim more victims. Suanlitou, a mining platform based in Hong Kong that allows users to extract Bitcoin on a contractual basis, said in a statement on Monday that it suspended all contracts involving Bitmain's Antminer T9, which was the plant most requested on the market. Suanlitou said it was unable to cover the management and electricity costs incurred by the use of such machines for a period of 10 days from 7 November.
China is home to some of the world's largest cryptocurrency mining facilities, thanks to the economic power of cheap coal in areas such as the autonomous regions of Xinjiang Uygur and Inner Mongolia. Cryptocurrency miners on land also exploited the excess of power and the cheaper rates provided by small hydropower plants, which triggered a government crackdown at the start of this year.
A group of Chinese cryptocurrency miners, who refused to be appointed for fear of government reprisals, said they had already closed 20,000 plants, equivalent to about 10% of the total number of machines with an average cost of energy equal to 0 , 4 yuan (RM0.24) per kWh.
Their struggles, however, represent an opportunity for others. Jack Liao, who runs the Bitcoin mining company based in Shenzhen, Lightning Asic, said he had bought about 50,000 used Bitcoin drilling rigs that have been put on sale in the market in recent days. About 70% of the machines they purchased were the Antminer S9 model, which cost around 500 yuan (RM301) per unit. A new Antminer S9 is up to 3,000 yuan (RM1,800).
Liao said he plans to ship these used plants to countries with cheaper electricity, such as Russia and Venezuela, so he can make a profit by selling them there.
It was expected that the bear market for cryptocurrencies would lengthen until next year, with Bitcoin prices falling to $ 2,000 (RM8,400). "Many people will not survive," he said. – South China Morning Post