It’s no secret that mining profitability, volume and prices have all dropped significantly in the last six months. As always, as the facts come out, the reasons for this are pretty clear (and in some cases alarming) but how does that affect our strategy as miners going forward?
I have three mining operations. One is using a bunch of local PCs in a commercial environment to mine part time when the PCs are not in use. These specialize in Monero (XMR) as it’s a nice, low impact algorithm. It produces a few Monero a year which I have been stockpiling.
The second is a dedicated mining rig nicknamed ‘Big Blue’ which is a 12 card 1080ti rig running 24/7 on various pools including Zpool, Zergpool, Ahashpool and Blazepool. We use Sniffdog to seek out the most favourable algorithm in real time and we’re paid in Bitcoin. Again, I have been stockpiling this.
Finally, I have recently purchased an Antminer S9 13.5 TH/s machine which should produce around 0.25 ish BTC a year, although that may change as the difficulty adjusts over the year. I’m not ruling out buying more of these either, especially as the power it is using is generated through renewable sources, something that’s important to me. I’ll be blogging about my experience with this later on.
But with prices so low, why bother? It’s a fair question and I think the answer depends on your strategy.
Normally, we’d expect to mine, generate some coins and sell them on the market to pay for the operating costs (usually the electricity) and create some profit. However, with electricity prices rising and crypto prices still falling, that is no longer possible for many people. As a result, many have stopped mining, and new miners have been dissuaded from entering the market, as has been evidenced by Nvidia’s recent troubles with enormous stockpiles of their top level 1080tis forcing the delay of their next gen cards.
If your costs are outweighing your profits, you only have a few choices:
a) Get out while you can and sell off what you have to recoup as much as possible. You can always buy cryptos directly with the money generated, you don’t HAVE to mine it.
b) Keep mining through a pool and stockpile the BTC being generated in anticipation of a higher price later on. You’ll need to swallow the electricity costs in the meantime though, so think carefully about that. This is risky strategy, so your appetite for that risk has to be considered. If the Bitcoin price never recovers, you’re stuck with a bigger loss (for the record, I don’t subscribe to that way of thinking)
c) Keep mining, but pick a coin that you think will do well in the future and stockpile THAT one. Same risks apply as they did in b) above, but a non-ASIC machine has the flexibility of being pointed in any direction, so you can use that to your advantage.
Directly mining Bitcoin by yourself is utterly pointless these days unless you have a dedicated ASIC machine as the network hash rate is undeniably controlled by a few big players. As a result, the difficulty will continue to increase as more and more physical mining units join the market and returns will diminish over time. That said, if the Bitcoin prices reaches the levels some of the optimistic players think it will, you’ll be glad you did.
Right now, it feels like a ‘last man standing’ sort of scenario for GPU mining. There are big players of course, with nice large farms with hundreds of cards, but for most amateur miners it’s a 4 or 6 card operation and those have become borderline for the majority. Many of these people have elected to stop mining and sell off their rigs, resulting in downward price pressure on this equipment in general, especially for the lower end units. But it also has another rather interesting effect, that of reducing the overall difficulty for everyone else. And as that difficulty reduces, the relative power of your own rig increases. And as the relative power of your own rig increases, so too does the amount of coins you’d be rewarded with for your mining efforts. In other words, even without a price increase, your profitability increases. And, of course, as soon as profitability increases, then new miners come on board again, thereby increases difficulty … and the whole cycle begins again.
Let’s also not forget the retail buying frenzy in December 2017 which forced BTC to nearly $20,000. It’s not the first time it’s happened and it sure as hell won’t be the last, and we can learn from that. It was almost impossible to get mining equipment (GPUs, mining motherboards etc) in the frantic ‘gold rush’ of those heady days, so what will happen when the next bull run comes? And should we switch off our machines in the meantime?
That decision is yours to make, of course, but I do believe it should consider both long and short term factors. For me, I won’t stop mining, and in fact I have been increasing my mining operations overall. It’s risky as there’s costs involved and when the market is as far down as it is from the peaks of 2017, it’s easy to be drawn into the ‘now’ and become pessimistic. But this is also when the best opportunities are available and when you need to set yourself up for the good times that will inevitably follow.
Just keep a cool head, assess what is right for you and take only as much risk as you are comfortable with. Happy mining!