The Top Five Mistakes Made In The Crypto-Mining Space And How To Avoid Them #5
Throughout the last two years, Harpia Mining has advised some of the largest mining firms on the intricacies of the mining market. With a robust hardware database solution and advanced predictive model, deep functional knowledgebase, and years of boots on the ground deployment experience, Harpia’s boutique consultancy and management solutions allows both new and experienced firms the ability to invest confidently in the mining market. In that time we have seen many hopeful miners fail to take into consideration the many intricacies of the mining market and fall into the same catastrophic pitfalls time and time again. This week we are sharing the top five mistakes miners make, and how to avoid them.
5. Failing To Understand, And Account For The Halving:
With economic changes coming to the Bitcoin network in the form of the Block Reward halving slated for some time in May 2020, anyone running older generation hardware (over 100 watts per tera-hash) at industry standard prices ($0.06kWh and up) as extremely vulnerable and potentially at the brink of capitulation. Simply put, if the underlying price of Bitcoin does not significantly increase, after May 2020 all miners running on the network stand to make half as much BTC and thus half as much equivalent USD.
Halvings occur every 210,000 blocks, or roughly every four years. This is a network-wide planned obsolescence designed to self-upgrade the computational power of the entire network autonomously. We expect many firms that are currently building out facilities and datacenters with older hardware (Antminer S9 generation and similar machines) to be unable to sustain sufficient profitability following the Halving especially when considering the enormous capital expenditure needed to build out large facilities, which most investors are trying to recoup the cost on as soon as humanly possible.
The capitulation of these miners should lower the competition for the Block Reward (difficulty) on the network, meaning that optimized miners will reap the rewards of their competition dying off in the form of a higher percentage of Bitcoin mined for the same amount of computational work. We saw this occur in 2018 as firms relying on the high price of BTC in 2017 to remain profitable were forced out of the market when the underlying asset price fell significantly. The firms that were able to mine profitably In the bear market and hold their coins to sell in better market conditions reaped the rewards as they made more Bitcoin at that time for the same amount of computational work. Mining is a relentless arms race and a true survival of the fittest market, and anyone not taking into consideration these key metrics stands to lose out heavily.
With the Litecoin halving taking place today (August 5th 2019), many industry experts are looking at the Litecoin network as a model of the relationship of network difficulty and asset valuation that may occur on the Bitcoin network. However, due to the lack of newer ASIC hardware available and/or upcoming for Litecoin, and the abundance of other Scrypt algorithm networks that current Litecoin network ASICs can be allotted to, we see a very different network response on the Litecoin network vs. Bitcoin.
The solution: Utilize historical network statistics modeled against theoretical difficulty at various underlying asset price valuations to gain a holistic meta-view of the equilibrium and relationships between these two variables. Harpia provides these types services and many more to our clients.
This is a five-part series to be published over the course of this week. We hope you enjoyed part one! To learn more, check out our website at www.harpiamining.com