The cryptocurrency mining sector has faced a myriad of trials in recent years, but the nascent industry has managed to surmount these challenges by innovating and adapting accordingly.
In the face of China’s May 2021 blanket ban on mining farms — despite evidence of continued illegal mining activity — miners were quick to up tools and relocate elsewhere.
Yet other countries followed in China’s lead, including Egypt, Iran, and India all of which have shown increasing hostility to crypto assets in general.
Public anger in Kazakhstan over power outages caused by the influx of miners from neighbouring China sent miners packing once again.
These widespread bans reshaped crypto mining’s geographical footprint, with the US emerging as the largest provider of network hashrate.
China remains the second largest crypto miner despite the ban — Source: Cambridge Bitcoin Electricity Consumption Index
Despite these existential threats, Gabriella Kusz, chief executive officer of the Global Digital Asset and Cryptocurrency Association, believes that the sector has shown remarkable resilience in recent years.
“Their resilience allowed industry firms to take the challenge of a crypto mining crackdown and turn it into an opportunity for strengthening the industry,” said Kusz.
Share prices plummet
That is not to say that the industry has remained unscathed, as made clear by the sizable fall in share prices among listed mining companies in the first two quarters.
Rob Chang, chief executive officer of Nevada-based Gryphon Digital Mining, believes that some of these listed companies have put the horse before the cart.
Chang told Proactive that “many of these guys were focusing more on getting a good stock price rather than good operations, or were very risk taking and leveraging very aggressively or overextending themselves capital wise… hoping that the bitcoin price doesn't drop”.
Unfortunately for them, it did. “So we think there are going to be a few companies out there that will blow up. Either they won’t be able to pay for machines that they have or they'll have deficits".
Falling revenues caused by the bear market also forced miners to dispose of their Bitcoin balances by a fivefold degree in May 2022.
While June data is not yet available, there is little doubt that the trend continued throughout the month as market conditions worsened and as some of the world’s largest Bitcoin whales, this can have dire consequences for an already strugglish crypto market.
So what should we expect of the market in the months and years ahead?
“Given the early stage of development of the industry it is expected that there will be consolidation,” stated Kusz.
“This is normal and natural in an emerging industry as part of its maturation and growth.
“The current volatility that we are experiencing will likely contribute to this as firms seek efficiencies and diversification in order to best position and navigate turbulent market conditions.”
Ethereum ditches mining
Adding to the sector’s growing list of burdens is the fact that Etherum, whose $145bln ETH token is the second-largest generator of miners’ revenues, will soon move away from mining in favour of the scalable proof-of-stake consensus method.
But Kusz believes that the sector’s resilience will pull through.
“The beautiful thing about the blockchain and digital assets space is that it is still evolving. Transformations such as Ethereum’s proof of stake move represent opportunities for the technology underlying digital assets to grow, strengthen and improve”.