In the midst of recent troubling developments, fear has gripped the cryptocurrency market. DeFi seems to be on the verge of collapse, altcoins have plummeted back to $0 (although that seems like a joke), and even the price of Bitcoin (BTC) has dropped lower than anticipated by even the most astute individuals.
Greed appears to have been a common thread throughout the recent bull market. Overconfidence and avarice have resulted in a significant amount of debt and leverage being unwound, leaving companies like 3AC, Celsius, BlockFi, and Voyager facing the very real possibility of going under.
It seems that Bitcoin miners and BTC mining companies were not immune to this prevailing sentiment of exuberance and the belief that the price would only go up. However, once Bitcoin reached the long-awaited target of $100,000, reality set in.
Bitcoin miners have always been a secretive bunch, rarely divulging information to the public. However, Cointelegraph managed to secure an interview with HashWorks CEO and founder Todd Esse to discuss the current state of the mining industry and his predictions for the future.
Cointelegraph:
Bitcoin is currently trading below its realized price and the cost of production for miners. The price is also below the previous all-time high and the hash rate is declining. Typically, on-chain analysts view these metrics hitting extreme lows as a significant buying opportunity. What are your thoughts?
Todd Esse: I believe that the current prices present an investment opportunity, as they do not reflect profitable mining margins under the current industry structure. However, I expect prices to remain under pressure as the mining industry goes through a reset or reconfiguration process.
CT: What is the current state of the BTC mining industry? We’ve heard reports of leveraged miners going bankrupt, inefficient miners shutting down, and mining equipment being seized or liquidated at discounted prices. The stock prices and cash flows of listed mining companies also look unfavorable. What is happening behind the scenes and how do you see this affecting the industry in the next six months to a year?
TE: In my opinion, mining still offers attractive investment returns for those who approach it selectively and with long-term goals. Much of the current mining capacity is using ASICs in the sub 85 TH/s range and energy contracts that have not been managed like those of traditional large-scale energy consumers.
We’ve seen this scenario before, haven’t we? Easy money combined with poor discipline leads to unbalanced risks. It is likely that we will see a consolidation in the mining industry, allowing for new investment capital to enter the market.
CT: Is now a good or bad time to start mining? Are there specific on-chain or profitability metrics that you look at, or is it more of a gut feeling?
TE: Periods of distress and shifts in the accepted paradigm often present advantages for new entrants. Our focus is to capitalize on these emerging opportunities.
CT: If I have $1 million in cash, is it a good time to start a mining operation? What about $300,000, $100,000, $10,000? At what level of seed funding, ranging from $40,000 to $10,000, would it not be a good time to start a mining farm, whether at home or industrial-sized?
TE: If you have $1 million in cash, it might be a good time to opportunistically acquire some BTC. The fully loaded production costs for major miners are not far from these levels. It would be challenging to maintain these levels until the price of ASICs decreases further. I believe the time for home mining has largely passed due to changes in the energy industry.
I would encourage those seeking returns to explore mining opportunities with companies like Compass Mining or other “cloud” miners, as their equipment and energy contracts may offer attractive investments as market dynamics change.
We believe that due to current disruptions in the market and increased acceptance of immersion solutions, there will continue to be attractive opportunities for large-scale mining operations.
CT: Does Bitcoin dropping below its previous all-time high for the first time have any significant impact on the asset and industry fundamentals?
TE: In our opinion, no. Historical comparisons are unreliable when dealing with an emerging commodity like BTC, which is also a transformative technical asset. Miners produce BTC based on a set of inputs (computing power, access to capital, and energy), and the output price does not always reflect the cost of production.
Mining BTC at scale is not fundamentally different from producing oil and gas or other commodities. Advances in drilling technology transformed North America’s position in the global energy markets. When oil and gas prices crashed during the early stages of the pandemic, no one questioned the need for transportation or heating. Mining supports the blockchain and proof-of-work computing, which will enable our grid to transition to a renewable energy future.
We are committed to being an innovative and constructive participant in this industry as it continues to mature.
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