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In the face of dismal profitability, Bitcoin miners are looking for new ways to stay afloat

In the face of dismal profitability, Bitcoin miners are looking for new ways to stay afloat

In the face of dismal profitability, Bitcoin miners are looking for new ways to stay afloat
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By CNBCTV18.com Oct 21, 2022 10:11:32 PM IST (Updated)

Bitcoin mining rigs are capable of other tasks besides just mining. That's the first thing big hosting companies are leveraging to outlast this crypto winter. Applied Blockchain, one of the world's biggest hosting companies, recently renamed itself Applied Digital to signal the expansion of its scope outside just mining.

These are challenging times for Bitcoin miners. The bitter crypto winter has BTC prices frozen within the $19,000 range. Moreover, Bitcoin mining difficulty saw a 13.55 percent spike on October 10, its largest increase in 2022, and it could see a further uptick on October 23. This could have a massive impact on the profitability of Bitcoin mining.

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Until six months ago, Bitcoin mining was a profitable exercise. That was because the price of BTC was much higher, allowing miners to run their mining rigs at full capacity and earn handsome profits. However, a lot has changed since then. With BTC falling well below $20,000, miners barely manage to recover their costs, even with the best of conditions, equipment and electricity rates.
Naturally, mining operations are no longer easy money, and miners are looking for other avenues to make their buck. In this article, we learn about some of the other sources of income that miners are exploring and how that's working out for both retail and big mining companies.
High-performance computing operations
Bitcoin mining rigs are capable of other tasks besides just mining. That's the first thing big hosting companies are leveraging to outlast this crypto winter. Applied Blockchain, one of the world's biggest hosting companies, recently renamed itself Applied Digital to signal the expansion of its scope outside just mining.
While the renaming is yet to be ratified by the stakeholders, steps are already in place to move towards high-performance computing (HPC). There might be a crypto winter ongoing, but the world's use of computing power and the internet is only increasing, so there is always sufficient demand.
The hardware that Applied Digital currently owns is being programmed for use "relating to image processing, graphics rendering, artificial intelligence and machine learning," said Applied Blockchain CEO Wes Cummins during a recent earnings call.
Another big player in the mining space is Hut 8, whose CEO openly announced their pivot to HPC to outlive the winter. He said the move would include "potentially leveraging our GPU machines to provide AI, machine learning, or VFX rendering services to customers and mining the next most profitable proof-of-work digital asset during idle time."
Buy out the competition or bet against mining difficulty
It's the survival of the fittest as the crypto winter weeds out weaker firms. Cash-rich miners are buying up smaller operations on the verge of shutting down. For instance, mining giant, CleanSpark, has been busy buying up competition over the last few month. The company has already splurged nearly $100 million buying Georgia mining facilities from Mawson and Waha Technologies. It also purchased 10,000 discounted Bitmain Antminer S19j Pro rigs.
This provides them access to more mining hardware and could increase profitability manifold when the price of BTC increases and mining is back to its heyday. It is a gamble, of course, but it could pay big if everything goes to plan.
Another way to beat declining profitability would be to bet against it. That's exactly what the crypto services firm, Luxor, is helping miners do. On October 10, the company launched a new product for investors to earn profits using bitcoin mining derivatives.
The product is called Luxor Hashprice NDF and functions like any other derivative product used in traditional finance (TradFi). However, instead of betting against the price of a share or crypto to protect against market downturns, Luxor Hashprice NDF will allow users to hedge against the bitcoin mining revenue one can earn over a specific period.
"If BTC mining profitability goes down over this timeframe, then you've hedged that downside and made a profit," said Colin Harper, head of research at Luxor. "But if profitability goes up, then you've lost money," he went on to say while speaking to Decrypt.
What are the retail miners doing?
Are you wondering what retail or individual miners can do now to mine another day? The obvious choices have been getting a day job, trading bitcoin and other cryptos, and pooling their hardware equipment into high-performance computing pools.
Another trend that’s catching on in recent times is to optimise wherever possible to spend less to mine more Bitcoin. Whether it is identifying the times when network difficulty is lowest or finding renewable energy sources to run their hardware, retail bitcoin miners are doing all they can to stay afloat.
Conclusion
The network difficulty is touching new highs every other week, the cost of new hardware is rising with inflation, and the price of electricity is no longer what it once was. Despite all this, there is hope.
So what if the share prices of many listed mining giants are half of what they were six months ago? If there is one thing we know about crypto, it’s that the prices go back up just as quickly as they fall. The pivots made by these mining firms aren't permanent. Mining will be back as soon as it is profitable again.
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