Bitcoin

Cryptoverse: Bitcoin Could Be Taken Down by Miners’ Disease

Cryptoverse: Bitcoin Could Be Taken Down by Miners' Disease

Feb 22 (Reuters) – Bitcoin miners are feeling the heat – and the pain is rippling downstream to put pressure on prices.

The spectacular cryptocurrency rally in 2021 has attracted thousands of participants in mining or producing new coins. As a result, the hashrate, or the combined computing power used by bitcoin miners around the world, has roughly quadrupled in the past six months to over 200 million “terahashes” per second.

But what does this have to do with the price of bitcoin?

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A rising hashrate makes it harder for miners to earn money and cover their costs for hardware, electricity and staff – so many are more likely to sell, rather than hold, their newly minted cryptocurrency , exerting a bearish force on the market.

“Operational costs are a major factor in miners’ decision to hold or sell newly acquired coins. They are the first and most natural sellers in the crypto space and therefore have a definite impact on prices,” said said Justin d’Anethan, director of institutional sales at crypto financial. Amber Group service firm.

The total value of coins held in miners’ wallets fell to around $75 billion, from $114 billion in early November, as their profitability was reduced by the rising hashrate as well as falling prices, according to the company. Oslo-based crypto research firm Arcane. Research.

Miners transferred more coins to exchanges than they added to reserves, according to crypto industry analyst firms, a sign of selling or intent to sell.

These flows add to the pressures facing bitcoin, whose drift into the mainstream has seen it caught in a sell-off in global markets due to tensions at the Ukrainian border and tighter Reserve policy. federal.

The globally dominant cryptocurrency is trading at around $37,854, 45% below its November 10 high of nearly $69,000.

WHAT IT COST

Bitcoin mining, in simple terms, is the process by which a network of computers verifies and validates a block of transactions which are then added to the blockchain. Miners are rewarded for completing a block.

It’s an expensive business, however, requiring not only fancy and fast “rigs” costing upwards of $10,000, but also a huge amount of power. And it gets more expensive.

The seven-day average of total mining cost per validated transaction fell to $176.8 from a record high of $235.57 in May last year, according to data from blockchain.com.

“As more miners join the network, each individually earns less bitcoin. This is because the difficulty of the network increases in order to slow the issuance of new bitcoins,” said Joe Burnett, analyst at infrastructure and mining company Blockware Solutions.

The declining profitability of the mining sector is also hitting the broader market, as some institutional investors, who cannot or will not invest directly in cryptocurrencies, are instead buying shares of listed miners or ETFs that track miners. as an alternative way to access young industry.

Shares of U.S.-listed crypto miners Marathon Digital Holdings (MARA.O) and Riot Blockchain (RIOT.O) have plunged 66% and 52%, respectively, since early November.

The Valkyrie Bitcoin Miners ETF (WGMI.O) has been trading at around a 5% discount to its net asset value since the fund launched in early February, and the Viridi Clean Energy Crypto-Mining & Semiconductor ETF has lost 23% since the start. of the year.

THE LAST BITCOIN

Some of the pressures on miners stem from the inherent structure of bitcoin. The decentralized blockchain was created anonymously with a final limit of 21 million coins, of which nearly 19 million have already been minted.

It takes around 10 minutes to mine a block, and the reward for miners – who currently receive 6.25 bitcoins per block – is halved approximately every four years.

“There could be a miner or a million, it doesn’t matter. There is only one block and a set number of bitcoins issued,” said d’Anethan at Amber Group.

One final note: don’t worry about what will happen when the last bitcoin is mined – it’s not expected until the middle of the next century, around 2140.

(This story corrected bitcoin price from Nov 10 in 9th paragraph)

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Reporting by Lisa Mattackal and Medha Singh in Bengaluru; Additional reporting by Alun John in Hong Kong and Vidya Ranganathan in Singapore; Editing by Vidya Ranganathan and Pravin Char

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.