Source: Bitcoin Magazine
Compilation: BitpushNews Mary Liu
History doesn’t repeat itself, but it always does.
Cryptocurrency mining companies continue to struggle to survive the ongoing bear market, with bankruptcies and lawsuits regularly dominating the headlines as a publicly traded mining company whose dreams of outperforming Bitcoin in market capitalization have long since been dashed. Even Wall Street analysts who were once bullish on investment opportunities in cryptocurrency mining are now saying they will “pull the plug” until the market improves. But just how bad is the current bear market?
As the proverb goes, it is always darkest just before the dawn. Compared to previous bear markets, the mining industry looks closer to the end of a volatile market phase than the beginning. This article explores a range of data sets from the current and previous bear markets, from hardware lifecycles and miner balances, to hash rate growth and hash price declines, in six charts that tell you where cryptocurrency miners stand in bear markets.
Mining revenue is evaporating
When the price of Bitcoin falls, it is no surprise that dollar-denominated mining revenue also falls. But about 900 BTC are still being mined every day until the next halving in 2024. This year’s plunge in bitcoin’s price means miners have far fewer dollars to spend on things like electricity, maintenance and loan servicing.
In November, the overall Bitcoin mining industry earned just under $500 million in revenue from processing transactions and issuing new tokens, as shown in the chart below, which shows monthly revenue compared to the past five years. Mining revenue in November was the lowest monthly revenue in two years.
Past Month Was Two-Year Low for Bitcoin Mining Company Revenue
Potential Reversal in Hash Rate Uptrend
Comparing the current bear market to the previous bear market in 2018 provides some interesting insights into how the mining industry has changed and how it has stayed the same. One comparison is hashrate growth during a price downtrend, it is not uncommon to see hashrate growth during bear markets. The annotated line chart below shows the hash rate growth curve from Bitcoin price peaks to retracements to historical (or current) lows during the 2018 and 2022 bear markets.
In this bear market so far, Bitcoin hash rate has only increased
An easily overlooked phenomenon in the chart above is the correction of hash rate growth late in the bearish phase. For example, in 2018, as the market finally came to a low in the price of Bitcoin, the growth trend clearly changed and fell. But in the current market, the hash rate is only increasing, and maybe the slight decrease in the hash rate in late November indicates a change in trend, but the question is still open.
The collapse of listed mining companies
Perhaps the most brutal Bitcoin mining chart shows the decline of listed mining companies this year. The past year has been notoriously brutal for Bitcoin, other cryptocurrencies, and the global economy. But mining companies have been hit especially hard. Shares in more than half of these companies have fallen more than 90% since January. Only two — CleanSpark and Riot Blockchain — fell by less than 80%.
In general, mining companies are often considered high BETA investments in Bitcoin, meaning that when Bitcoin rises, mining stock prices rise more. But this market dynamic works both ways. When Bitcoin falls, the downside for mining stocks is more brutal. The bar chart below shows the carnage these stocks have experienced.
Bitcoin mining stocks have been slaughtered
The Rise and Fall of the Bitcoin Mining “AK-47”
A sign of the current undervalued Bitcoin bear market is the sharp drop in hash rate contributed by Bitmain’s Antminer S9 machines. This model of miner is sometimes referred to as the “AK-47” of mining due to its ruggedness and reliability. At a certain point in the bear market in 2018, S9 was the “king” of mining machines. At the bottom of the previous bear market, nearly 80% of the total computing power of Bitcoin came from Bitmain.
But the current bear market tells a completely different story. The S9s’ hash rate percentage dropped below 2% in early November as new, more efficient hardware and off-hand squeezed mining margins. The annotated line chart below shows the rise and fall of the computing power contributed by this model.
Antminer S9 has a big drop
Miners accumulate more than sell
The past few months have been disastrous for the cryptocurrency industry, as exchange wars, insolvent custodians, and other forms of financial distress gripped the market. Many bitcoin investors assume their industry is largely immune to the chaos of “other cryptocurrencies,” but this is often wrong. For miners who are not good at timing the market, some panic is evident as address balances and miner outflows seem to fall and soar, respectively.
But the phenomenon appears to be short-lived. The line chart below shows that miner address balances have almost fully recouped the decline from late September to October. In short, miners appear to be back in HODL mode, immune to external market events. Whether the bear market is over is unknown, but miners appear to be accumulating more than selling.
Miners seem to be back in HODL mode
Hash Price Drop: 2022 VS 2018
Hash price is one of the most popular economic indicators tracked by miners, even though it is rarely understood by those outside of the mining industry. In short, this metric represents the expected dollar-denominated revenue per marginal unit of hashrate. Like everything else in a bear market, the hash price has dropped significantly. But its drop is not unusual, especially compared to the 2018 hash price drop.
The graph below shows the normalized hash price retracement for 2018 and 2022. Readers will notice that the slope and size of the drawdowns are very similar. 2018 was slightly steeper. 2022-to-date, the curve is gentler but longer, but for fledgling mining operations, it was and is brutal.
Compared to the same price in 2018, the hash price drop in 2022 will be smaller, but last longer.
The next phase of mining
For any properly functioning market, boom and bust cycles are a natural series of events. The field of Bitcoin mining is no exception. Over the past year, as the bull market bubble has burst, weaker and less prepared operators in the mining industry have been wiped out. Now, in the depths of a bear market, true builders can continue to expand their businesses and lay a solid foundation for the next phase of a bull market.
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