Cryptoverse: Bitcoin could be laid low by miners’ malady


February 22 (Reuters) – Bitcoin miners are feeling the heat – and pain is swaying downstream to push up prices.

The spectacular cryptocurrency rally in 2021 attracted thousands of participants in mining or the production of new coins. As a result, the hashrate, or combined computing power used by bitcoin miners worldwide, has quadrupled in the last six months to more than 200 million “terahashes” per second.

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

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An increase in hashrate makes it more difficult for miners to earn coins and cover their hardware, electricity and personnel costs, so many are more likely to sell, rather than maintain, their newly minted cryptocurrency, exerting a bearish force. in the market.

“Operating costs are an important factor in miners’ decision to keep or sell newly acquired coins. They are the first and most natural sellers in the cryptographic space and therefore definitely impact prices,” said Justin d’Anethan, director of financial crypto institutional sales. Amber Group service company.

The total value of the coins contained in the miners ’portfolios fell to about $ 75 billion from $ 114 billion in early November, as their profitability was squeezed by rising hashrate and falling prices, according to the research firm of cryptography based in Oslo, Arcane. Research.

The miners have been transferring more coins to the exchanges than adding to the reserves, according to cryptographic industry analysis companies, a sell signal or intention to sell.

These flows add to the pressures facing bitcoin, whose drift into the mainstream has seen it caught in a liquidation in global markets driven by tensions on the border with Ukraine and the tightening of Federal Reserve policy.

The world’s dominant cryptocurrency is trading at about $ 37,854, 45% below its November 10 high of nearly $ 69,000.

WHAT IT COSTS

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

However, it is an expensive business, requiring not only sophisticated and fast “equipment” that costs more than $ 10,000, but also a huge amount of energy. And it’s getting more expensive.

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

“As more miners join the network, each one individually earns fewer bitcoins. This is because the network’s difficulty increases to curb the issuance of new bitcoins,” said Joe Burnett, an analyst at mining and infrastructure company Blockware Solutions.

Declining mining profitability is also affecting the wider market because some institutional investors, who cannot or do not want to invest directly in cryptocurrencies, buy shares of listed miners or ETFs that track miners as an alternative way to access new industry.

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

Meanwhile, the Valkyrie Bitcoin Miners ETF (WGMI.O) is trading at a discount of approximately 5% in its net asset value since the fund’s launch in early February, and the Viridi Clean Energy Crypto-Mining & Semiconductor ETF has lost 23 % from the beginning. of the year.

THE LAST BITCOIN

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

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

“There can be a miner or a million, it doesn’t change anything. There’s only one block and a certain number of bitcoins issued,” d’Anethan told Amber Group.

One final note: don’t lose sleep about what will happen when the last bitcoin is extracted, which is not expected until the middle of the next century, about 2140.

(This story corrected the price of bitcoin on November 10 in paragraph 9)

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Report by Lisa Mattackal and Medha Singh in Bangalore; Additional report by Alun John in Hong Kong and Vidya Ranganathan in Singapore; Edited by Vidya Ranganathan and Pravin Char

Our standards: the principles of trust of Thomson Reuters.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Principles of Trust, is committed to integrity, independence and freedom from prejudice.



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