2020 will be a very interesting year for Bitcoin and the cryptocurrency mining market. The next halvening event is now only months away, where the block reward will drop from 12.5 to 6.25 coins. This monumental event is expected to take place on May 12, 2020, and will have a massive effect on the crypto miners and the market as a whole.
The hash rate of the BTC network has increased by almost 200% over the last 12 months. Numerous competitor mining companies have been established and are looking to capitalise on this sector. Recent estimates have indicated that around $5.5 billion was generated in revenue by miners over 2019. The strong growth in the network’s hash rate has been driven by a combination of more powerful mining equipment and a strong average bitcoin price. It has been promising to see that the mining sector is looking to diversify outside of China and more mining operations are cropping up throughout Europe, the Middle East, and North America. Despite this diversification, China still dominates the market, with an estimated 65% of BTC’s hash power residing in China.
The movement of institutional investors into the mining sector has resulted in small scale mining operations being wiped out. It is no longer worth the hassle or profitable enough for individuals to mine at home. The craze of 2017 where every second person had a mining rig running at home is long gone. This new market is all about scalability. Bigger investors have the upper hand as they can negotiate cheaper electricity rates and equipment prices.
Large scale bitcoin mining operation located in Canada
It’s reassuring to see the market maturing and bigger players showing interest. Canaan Inc. recently became the first Bitcoin miner manufacturer to do an IPO in the USA. Fidelity investments are now recruiting a “Bitcoin Mining Engineer” and Peter Thiel (co-founder of Paypal and legendary investor) invested in Layer1, a company looking to soon launch a mining farm in Texas.
Despite these promising developments, the halvening remains a sticky issue. Many investors in the mining sector have held onto their cash in Q1 of 2020, choosing a wait and watch strategy. This is a wise decision considering that the potential reward for miners will suddenly be halved during May of 2020. If the price of Bitcoin does not increase by a significant amount, the margins of these mining operations will be squeezed. However, if the price of Bitcoin remains the same, we may see a drawdown in the hash rate of as much as 50%.
The halvening will make older miner gear such as the S9s redundant. This is reflected in the price of S9s, which were selling at over $2000 when first announced in May of 2016 but are currently selling for around $100 a machine. Mining hardware has seen a massive improvement in recent years, and this will only continue. Companies such as MicroBT and Canaan are competing more closely with Bitmain and this competition will prove to be beneficial to the consumers of these machines.
2020 will certainly be an interesting year for the mining sector and BTC as a whole. It’ll be exciting to see how this all plays out.
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