Reading time: ~2 m
The fall of bitcoin has had a negative impact on all sectors of the crypto industry. The situation is aggravated by the strengthening of the ruble against the dollar. In this regard, mining in Russia has become less profitable and even unprofitable for local cryptocurrency miners, since small incomes do not even cover electricity costs, not to mention payback and profit. The secondary market is full of used equipment, which suggests that miners are selling their cards and ASICs, hoping to somehow discourage investments. Does this indicate the collapse of mining in Russia or is it only a temporary decline associated with crypto winter? Should miners sell equipment in a panic or is there no reason to worry?
Why did the incomes of miners fall?
Russian miners are concerned about the fall in incomes, and therefore actively sell farms in the secondary market. At the same time, prices are set quite low in order to get rid of the equipment in the shortest possible time. The main reason is almost zero profitability. If earlier it was possible to make good money on the extraction of virtual money, today the income from mining is barely enough to cover electricity bills. But the equipment still needs to be serviced, maintained in working order, etc.
We asked experts if it is true that recently revenues from cryptocurrency mining have not just fallen, but mining has become unprofitable, as well as what factors and events have influenced this.
Maxim Malysh, founder and CEO of Kryptex, confirmed that miners’ incomes did fall, but not all miners became unprofitable. The profitability of mining is determined by three factors: exchange rates, the cost of electricity and the complexity of the network.
The expert explained:
“Exchange rates have fallen by about 2-3 times. The cost of electricity can be considered a constant. The complexity of the network is, roughly speaking, the number of active miners. The lower the complexity of the network, the higher the profitability. Miners with expensive electricity (for example, in Europe) are already disconnecting equipment from the network, the complexity of the network is falling. Therefore, yields in recent days have begun to grow again.
In the dry residue, everything comes down to the region of placement of the equipment. For example, in Irkutsk and Dagestan, electricity is very cheap, so mining is still profitable there. Only miners with expensive electricity drop out of the game.
The current drop in crypto is caused by the outflow of capital from the markets and does not fundamentally change anything. During the pandemic, the market was flooded with cheap money, the capitalization of the markets increased, and now central banks are withdrawing this surplus. There is a correction in the value of all assets, not just the crypto.”
Igor Chekun, CEO of Xtrey Group, agrees that cryptocurrency mining is going through hard times right now. Many ASIC models are already operating at a loss. So, with the cost of electricity 5 rubles / kW, ASICs on the SHA-256 algorithm (bitcoin mining) with a capacity of up to 50 TH / s, and even up to 60 TH / s do not pay off the cost of electricity spent. For example, Antminer L3+ (Scrypt algorithm – Mining Litecoin and Doge) and many other models on other algorithms also work in the red.
According to the expert, the main factor that led to this was the decline in the value of mined cryptocurrencies. Another notable factor in Russia was the depreciation of the dollar. As a result, the income from mining in Russia, in rubles, decreased even more. If at the peak a few months ago the cost of bitcoin reached 5 million rubles, then on the current local bottom it decreased almost 5 times.
Vyacheslav Konovalenko, founder and CEO of Syndicate Of Traders, shared his opinion on the current situation:
“Mining is really going through hard times now. At the moment, if the cost of electricity exceeds 2-2.5 rubles per kW, then we can say that you work at a loss … And the average cost of electricity in the Russian Federation exceeds this tariff. The only exceptions are the Irkutsk region and Khakassia, where electricity tariffs are very low.”
According to the expert, the sale of equipment in the current conditions is caused more by panic, since many went into mining “on hype”, when equipment prices were 2-3 times higher than now. And, of course, the payback of such equipment now just flew into space … And someone took equipment on borrowed funds in the hope that it will pay for itself, and now he is forced to sell the equipment just to repay loans, and not to pay for them out of his own pocket, as well as for electricity.
The expert also added:
“Well, a plus to this, of course, in the mining market, as well as nand the cryptocurrency trading market, there are “weak hands”. Those who are influenced by the news FUDa, in fear of the unknown, decide to leave even with losses than to lose everything. Any investment is a risk, and, of course, you need to calculate these risks and be prepared for such situations as now. Nevertheless, now there are a lot of more reasonable investors who, on the contrary, buy equipment. The prices are just great now. We have this information from our partners in China, who sell equipment in fairly large volumes. And it is in the Russian Federation that very good volumes of equipment are now being sent.”
Timofey Semenov, CEO of Intelion Data Systems, emphasized that the mining product – cryptocurrency (and, we are talking about most of its names) has always been a highly volatile asset. And the temporary fall in its rate, obviously, cannot be considered as a factor in the long-term assessment of this business, as unprofitable.
At the moment, the profitability has fallen, however, the expert noted that against the background of temporarily changed market conditions, it is possible to obtain preferential (relative to the previous) terms of service from operating companies that provide a full range of services – from the purchase of equipment to its use and maintenance. In addition, in the current conditions, the complexity of mining in networks, for example, BTC / ETH, is likely to decrease significantly in the coming weeks and, accordingly, the profitability of those who continue to mine cryptocurrency will grow significantly. We should not forget about such a fact as the likely prospect of a weakening of the ruble in the second half of 2022. In this case, it becomes more profitable to pay for hosting, since customers receive foreign exchange income, and payment for the services of mining operators is carried out in rubles.
Dmitry Noskov, an expert of the StormGain crypto exchange, shared his opinion with the readers of our magazine:
“Yes, now it is clear that miners are panicking. The fall in the market price of cryptocurrencies (due to geopolitics and the policy of financial regulators on rates) and the rise in electricity prices (due to geopolitical problems) have led to the fact that mining has ceased to be profitable. However, after bitcoin was able to gain a foothold above the psychological mark of 20 thousand dollars, these fears subsided a little. There were fears in the market that the main currency could collapse to zero price, but it is clear that this will not happen.”
Renat Kalinchenko, crypto enthusiast, expert of the company “Turov Invest”, recalled that in 2017, when there was a bear market and bitcoin fell very much, many miners left the market and sold the equipment just for a pittance, thereby they went into a huge minus. And now they are biting their elbows and regret it very much. Why? In a bear market, when the value of bitcoin falls, miners begin to feel not very good because they mine cryptocurrency and sometimes it happens that the income from mining is not enough to cover the cost of electricity. Therefore, many decide either to shut down farms or simply sell them.
At the same time, the expert added:
“This is the wrong position, because at the time of the bear market it is necessary to increase savings. That is, now the market is at the stage of accumulating assets. On the contrary, you need to buy bitcoin, buy new mining devices, because they have fallen quite strongly in price, and continue to mine in the red. Because the pure bitcoin that is mined now can be worth $ 100,000 in the future, can be worth $ 80,000 and even this year. Therefore, in no case can you turn off the device, in no case can you sell them, You need to continue to mine and accumulate your positions. “
Aaron Chomsky, head of the investment department of ICB Fund, in turn, believes that it is impossible to calculate a certain total unprofitability of cryptocurrency mining, since the amount of costs for each miner is different. It all depends on the price for which the equipment was bought, how much is spent on electricity, renting a room and other nuances. Large players can save money by purchasing large batches of ASICs and get access to cheaper electricity, while someone uses not the most efficient version of ASIK, and even pays high bills.
At the same time, the expert added that it is still possible to indirectly assess the situation. In particular, there is the Puell Multiple metric, which tracks the aggregate income of miners in dollars on average per year. According to these figures, bitcoin miners are now earning 49% less than the average for the last 121 months, as a result of which, including to cover costs, they are actively selling their reserves: over the past two months, at least 7.9 thousand coins have been sold. They still have about 66.9 thousand BTC on their balance sheets, so as the rate decreases, the pressure will increase.Go ahead.
The expert also stressed that the efficiency of mining has always raised questions, since not the most liquid equipment still needs to be recouped in the condition of fixed costs. At the same time, a much more interesting option is the purchase of liquid coins, which can be easily sold at any time, and their staking to generate passive income.
Vladislav Utushkin, a blockchain enthusiast, CEO of TTM Group, has his position on this matter:
“I often say, ‘A loss comes when you agree with it and fix it.’ Miners now have a hard time, they are forced to sell the accumulated asset cheaper in order to avoid a complete loss of their capacity. Market players are constantly changing. Some will leave, others will take their place. As usual, the patient and resilient will win. The less competition there is in a given segment, the more likely it is for those who stay and continue to mine.”
Danatar Atajanov, Brand Manager of the OXLY crypto platform. IO does not believe that all mining has become unprofitable. The profitability of mining depends not only on the cost of crypto, but also on the cost of electricity, energy efficiency of equipment. Mining on outdated equipment, indeed, can be unprofitable, but mining on the equipment of the latest generations remains profitable. The cost of electricity in Russia still remains comfortable for mining, especially in regions where there is excess capacity and whether developing industrial mining. Although all over the world there is a tendency to increase the cost of electricity and to the desire to allow mining only on green energy. At the same time, the expert recalled how during the growth of cryptocurrency rates, equipment that had long been out of circulation was connected to the network. A similar pattern is likely to be observed in the future.
Also, it cannot be said that all miners sell equipment.
Victoria Ustimenko, CEO of PR agency PRETOBUSINESS, has her position on this matter:
“To tell the truth, we are not as connected with mining as we would like. But our state forces ordinary IT specialists to change the location. So it may also be a factor due to the general situation, and not the crypto winter.”
Alexander Lozben, the head of ViaBTC in Russia and the CIS, believes that the equipment should definitely not be sold. Its price is directly related to the value of bitcoin, and bitcoin is a highly volatile currency, today it is traded for one value, tomorrow for another. Equipment should be sold on the so-called “hayahs” (at a high rate), and buy at the bottom when the rate drops. Now is the best time to buy equipment rather than sell it.
The expert also added:
“Used equipment has always been sold and the secondary market is now even less active than before. Mostly inexperienced miners with low power panic and sell equipment, who were frightened by a sharp drop in income. Yes, profits have fallen for many, but most of the equipment of the latest generation still brings a good income, there are no losses on it. The owners of old models “fall off”, they cannot withstand the simultaneous growth of complexity and the fall of the bitcoin rate, their equipment becomes unprofitable. This is due to their bet on a quick income, here often not read the mathematics in the event of a drop in the rate of the cryptocurrency. Due to low power and adverse conditions, the equipment begins to work in the red. It is better to immediately buy the latest equipment with a capacity of more than 100 TH / s. The complexity of the network and the total hashrate are constantly growing, more and more new devices are connected, competition is increasing. This suggests that, in general, miners do not turn off, but on the contrary, increase capacity.”
Reinis Tumovs, a banking expert and member of the board of directors of Wellcome keys worldwide, agrees that miners around the world are really going through hard times. Electricity rises in price, previously purchased equipment degrades, and new equipment becomes cheaper, which pushes down the secondary market of ASICs and top video cards. But the most powerful contribution to the fall in the liquidity of mining was made by the decline in the rate of bitcoin, the extraction of which was engaged in most of the “miners”. At the beginning of the year, it traded at the level of 45 – 47 thousand dollars per coin, and on July 11 it fell below 20,000. All this makes mining economically impractical, because the sale of mined coins now, depending on the actual costs incurred for electricity, maintenance and repair of equipment, at best allows miners to work “at zero”. At worst, they do it at a loss. For a crypto enthusiast whose farms are (conditionally) placed on the balcony of an apartment, such losses are not critical, but more or less serious miners who have invested hundreds of thousands of dollars in equipment cannot afford to work for a long time without profit.
Vladimir Gorgadze, Head of the Master’s Program “Blockchain” at MIPT, co-founder of the tokenization platform Atomyze and the IT company Newity, identified the main factors of reducing the profitability of mining:
“First, due to the negative dynamics of the crypto market, there was a drawdown in revenue from mining when converted into fiat currencies (and all the costs of miners in fiat currency are electricity, support for infrastructure and equipment, etc.). And secondly, there is an inevitable obsolescence of equipment. What when mining brought a good income two or three years ago, is now already outdated. Even with a growing market, outdated equipment would give a minimal profit, and now it can work at a loss. By the way, the same thing happened during the crypto winter 2 years ago.
Plus, in the near future, it seems, there will still be a transition to the consensus of the PoS cryptocurrency number 2 – Ethereum, and this will mean a significant loss of the video card mining market for miners. “
Russian mining on the verge of collapse?
Bitcoin continues to fall, the crypto winter promises to be long, the production of cryptocurrencies becomes unprofitable – all this creates a negative background and sows panic among miners. In connection with all these events, we asked experts, can we say that Russian mining is on the verge of collapse? What should crypt miners do in this situation: wait out the period, buy cheap equipment while there is an opportunity or stop mining and look for alternative sources of income?
Maxim Malysh does not see anything critical in what is happening now in the field of the crypto industry:
“I do not believe that Russian mining is on the verge of collapse. In Russia, electricity is very cheap, so mining is still profitable, although profitability has significantly decreased.
In addition, for me, mining has always been a way to earn crypto: bitcoins and ether, and not rubles or dollars. I mined at a rate of $ 10, and $ 100, and $ 1000 and $ 3000 for ETH. I sold ETH and BTC only when their share in my portfolio exceeded 50%. This obviously only happened during the high course. When bitcoin fell (including to $ 3,000 per BTC in 2018), the share of crypto in my portfolio decreased and I, accordingly, did not sell it. And I’m not selling now.”
Vyacheslav Konovalenko also does not see any threat and believes that the mining industry in the Russian Federation will only continue to develop. As in any business, weak players will leave, and stronger ones will take their place. Russia has a huge surplus of electricity, so industrial mining will develop. At the moment, the Russian Federation ranks 3rd in the volume of mining, and in general, the country has every chance to reach the first line in terms of the volume of crypt mined.
Timofey Semenov looks at the current situation quite optimistically. According to experts of Intelion Data Systems, there is no question of the collapse of the Russian mining market. Difficulties are applicable in the event of a drop in the dollar to the level of 30 rubles per unit, but this is unlikely. In the current situation, it makes sense to increase the available capacity due to cheaper equipment. At the same time, emotional decisions, in relation to any market asset or instrument, should not be allowed, and changed conditions or local conjuncture should be considered as a “window of opportunity”. The sale of equipment on the wave of panic at the lows of its value will bring only a “fixation” of the loss, and consideration of the chronological retrospective of the crypto market since 2017 shows that after the fall comes growth, which, obviously, eliminates the “drawdowns” of today.
Renat Kalinchenko shared his opinion with the readers of our magazine:
“Mining at the moment is definitely not on the verge of collapse. In this case, you just need to continue, as I said earlier. Buy cheap equipment, buy cheap tokens.
Just understand: at the moment there are huge discounts in the crypto market, some tokens have fallen by 70-80-90 percent, the equipment has also sagged. And if earlier for 10 million you could buy 10 miners, now you can buy 40 of them. That’s a huge difference. And in such a difficult moment for the entire crypto-community, for the whole world, on the contrary, you need to keep strong hands. It is necessary to buy off the equipment, to buy tokens, in order to make money on this in the future. In the bull market, it is not the people who earn money in the bull market who began to buy something. In the bull market, those people who are not afraid of the bear market earn, so now in no case should you throw cryptocurrency, stop buying it, stop mining, and so on. On the contrary, we need to get involved and work actively, deny ourselves something, squeeze our desires somewhere and kill it all in the crypt.”
Vladimir Gorgadze in turn, recalled that the crypto market reacts sharply to the downturns and declines of traditional markets, with a greater amplitude than traditional acts.You. Inside the crypto market, too, not everything is homogeneous – many coins with a “small” capitalization, compared to BTC, grow and fall faster than the #1 cryptocurrency. If now the mining of such coins is extremely unprofitable (in terms of income / expenses), then for those large miners who are ready to mine “in the red”, investing their funds in the mining process, and at the same time accumulating mined assets, the mining crypto winter may turn out to be a good time to accumulate assets for the future, because the growth of such assets x10+ times does not seem to be something fantastic. Plus, with the drawdown of the total hashrate of the network, mining becomes increasingly profitable in terms of the coins themselves (not their dollar equivalent).
The expert also added that the purchase of new equipment during this period is also a decision, although risky, because the equipment is becoming obsolete, and no one knows how long the crypto winter will last. Another solution is to mothball the mining farm until better times, if there is no desire to invest in mining now. Do not panic, but it is worth soberly assessing the available opportunities and plans.
Igor Chekun Expressed its opinion on the matter:
“Cryptocurrency mining is still profitable on many types of equipment. Therefore, to say that Russian mining is on the verge of collapse would be wrong. Many miners who used low-power, outdated equipment will indeed be forced to leave the market if they have not already left. This also affects the infrastructure of the market – there are fewer customers at mining hotels, there are fewer transactions with equipment, etc. Thus, the problems of the market are obvious and affect almost all its participants, but they are not so critical as to talk, for example, about the closure of the industry.
The current decline in the field of cryptocurrency once again clearly showed that it is impossible to focus on mining as the only source of income, due to the instability, high volatility of the market. At the same time, long-term investors in this market, in my opinion, have a good chance of making money on it. If you play for a long time, then the strategy of buying cheap equipment on the decline is quite justified. After another growth, such equipment will pay off very quickly and grow in price following the market. The only question for the miner here is whether we have reached the local bottom and whether to buy equipment now or wait for further decline, and also, if there is growth, then when.”
Artem Barger, Scientific Director of the Master’s Program in Blockchain at MIPT, Chairman of the Expert Council of the Research Center “Idea”, in turn, emphasized that in connection with the increase in interest rates in the US financial market, many investors have begun to redistribute their investment portfolios in order to withdraw funds from riskier investments, in particular, this affected the crypto asset market, where there is a sharp drop in prices. Experts predict a tightening of monetary policy by many central banks, which will inevitably lead to an additional increase in interest rates, and, therefore, it is also not necessary to expect the nearest correction in the crypto markets. The current drop in cryptocurrency capitalization has pushed many miners to sell equipment, as it has become much more difficult to make a profit and maintain profitability, on the other hand, large players, taking advantage of the moment, are increasing their capacities by buying up equipment. The current situation is extremely difficult for the mining industry, but it is too early to talk about the collapse of the industry as a whole, according to the expert.
Dmitry Noskov commented on the matter:
“Most likely, the panic mood in the market will subside, cryptocurrency prices will return to growth – so miners should not wait for the collapse of this industry now. Those who want to continue mining cryptocurrencies can buy cheaper equipment at a reduced price. Those who are tired of risk and the often changing situation, and want to stop mining, should also not rush – it is worth waiting for the moment when the panic subsides, and then look for a buyer for equipment, which by that time will again rise in price somewhat. “
Victoria Ustimenko is less optimistic and believes that there is a high probability that mining will go under state regulation or under institutional regulation. According to the expert, the confiscation of equipment in Ukraine several years ago by the SBU is an excellent example.
Alexander Lozben in turn, he believes that it is impossible to say that Russian mining is on the verge of collapse, of course. He’s doing pretty well. Naturally, there is an aggravating factor in the form of a strengthened ruble, against this background, the cost of electricity increases. Nevertheless, many miners hope for a course correction and cheaper electricity, so they continue to work. Even though people are turn off old equipment because of its unprofitability, this plays into the hands of other miners, as the complexity is recalculated and miners with modern equipment earn more. According to the expert, there is no collapse, on the contrary, now is the best time to buy equipment, as its prices have fallen.
Vladislav Utushkin shared his thoughts on this matter:
“There is such a thing:
– You see, the market falls, then rises, then falls again!
– Then it grows again?
– No, then to the factory.
Let’s compare mining with business. When forming it, you should always calculate risks, possible situations and take decisions to improve if at the moment the business began to make losses. People who make decisions based on euphoria often fail. A crisis is always an opportunity to make money. To transport capacity to another country, to average the cost of equipment by increasing capacity, to wait until the price of the coin rises.”
Danatar Atajanov I completely disagree with the statement that Russian mining is on the verge of collapse. The expert does not deny that there are a lot of circumstances that complicate the life of miners: this is the fall in cryptocurrency rates, and increased control over the use of electricity, and vague legislation. Under these conditions, some miners are forced to turn off part of the equipment or transfer it to places with inexpensive electricity. The other part took advantage of the pause to update the park. The complexity of mining has fallen and with a competent approach and balanced energy consumption, investments in mining remain profitable. Miners bypass difficulties with crypto currency regulation due to the ability to export the hashrate receiving fiat money immediately.
Reinis Tumovs does not deny that the position of miners in Russia is much more complicated than that of their foreign counterparts, because a considerable percentage of the liquidity of the production of the same bitcoin was “eaten up” by the strengthening of the ruble against the dollar and the euro. In addition, because of the sanctions, it has become much more difficult for Russian miners to purchase new, more high-performance equipment.
At the same time, the expert added that the current situation is not unique for the cryptocurrency market:
“Such “winters” and “frosts” have already happened more than once. Therefore, I would warn miners against impulse sales of equipment (especially since the secondary market is already flooded with used video cards, and it is unlikely to get a good price for them), including because of the transition of ETH to the PoS protocol, and I would recommend paying attention to liquidity mining, which will allow them to receive a stable income in this difficult time. without getting rid of equipment at bargain prices.”
Based on the answers of experts, we can conclude that, despite the hard times, the mining sphere in Russia is far from collapse. On the contrary, now is the best time to increase capacity and significantly increase profits from coin mining in the future.
#worth #succumbing #panic #selling #equipment