Santa Claus didn’t do anything for the world of bitcoin, that is for sure. It’s been a crappy 2 weeks in the mines, with a true triple whammy for me: Bitcoin price dropped almost in half at one point, mining difficulty went up another 20%, and the price of buying additional hashrate with Hashflare went up by nearly 50%. Summed up, it’s a squeeze.
A fourth negative raised it’s head today, as South Korean announced intentions to regulate crypto exchanges and potentially ban anonymous trading of any sort. That Kicked bitcoin down over 10% which had a knock on effect to other currencies as well.
What does all this do for my numbers?
Well, here’s the thing. One of concepts was to use earnings in bitcoin to purchase additional Hashrate. I long since marked my initial invest in mining as “lost” so I don’t worry about the whole thing crashing. If it crashes, I will have the same “oh well” attitude that someone who bet red on the roulette wheel did when it came up 00. But with a combination of a significant price increase in hashrate which is priced in US dollars, and a huge decrease in the value of my earnings (expressed in bitcoins) the actual cost in bitcoins to obtain another 1 TH/s of hashrate has literally doubled in the span of 10 days. That doubling of course leads to the unenjoyable math that pushes the break even / return point out much further into the unforeseeable future.
Much of this of course hinges on the market price of the underlying Bitcoin itself. The bitcoin price USD has been everywhere from as low as just under $11000 to almost $18,000 in the last 10 days, and has seemingly settled into a solid oscillating pattern between 13.5k and 16.5k or so. If that remains the case going forward, it really does shift some of the numbers for me.
The other side of the problem comes from the difficulty increase. When I started out, I had some good days of generating 0.00018 BTC per TH. That might not seem like a lot, but that suggested 0.0657 bitcoin for the year contract, which at the $10,000 price when I walked in was $657, or 4.2 times my investment. Sweet. At $20,000, that suggested over 8 times return. Nice if you can get it, right?
However, two successive and quite huge jumps in the difficulty have made it quite a bit harder. My net today 0.00010645 per TH. for 365 days, that means 0.03885425 generated, and even with today’s nicer $14500 per coin, I am looking at $562 of income. That’s still 3.5 times return, which is nice, but as a trend, it’s not good. If the trend down (decrease in forecast income) drops by even 10% per month, it means at the end that I am just about (and probably not even) breaking even on the process.
Why? Well, if the difficulty to mine continues to rise (and it likely will) my return on mining per TH 30 days from now will likely be about 0.00009 or less per day. A month later, that number drops again to 0.00008, and so on until near the end of the 12 month cycle, I am down to about 0.00002 or so, and the “maintenance” cost will effectively end any potential for actual income. I don’t think it will get quite this bad, but there is little to suggest it will get better. 2017 started at 337G difficulty, and looks to state 2018 at 1900G – more than 5 times higher. 2016 started at 104g, meaning 3.5 times higher. So even using the lower 2016 rate of increase, cloud mining will be rubbed out this year.
it’s not a good forecast.
The only thing that can really save it and make it work out is one of the following: A dramatic (shocking) increase in price of bit coin at the pace of the difficulty increases. That would mean bitcoin would have to end 2018 at between 50k to 80K, which would give me a little more margin as the costs of maintenance are calculated in dollars. The other saving would be if people move away dramatically from mining bitcoin to other alt coins. That would have the effect of actually decreasing the difficulty (as there would be less mining going on).
I will look more into this in a future post. The dual questions of cost to mine and cost per transaction are two very big walls that Bitcoin has to scale somehow. It’s reaching critical points on both where any more significant drop in price of bitcoin, say down under $8000, would likely drive a huge percentage of miners out of the game in my estimation. As I said, I will post about that in the future, the “China effect” on bitcoin mining overall.