In these troubled times, negative news seems to be everywhere, and the resulting fear is palpable. DeFi appears to be on the brink of collapse, altcoins have completed their life cycle by plummeting back to zero (although that’s more of a joke), and even Bitcoin (BTC) has seen its price drop lower than even the most astute experts predicted.
Greed seems to have been the prevailing theme of the recent bull market. People became overly confident and greedy, and now we’re witnessing the consequences as companies like 3AC, Celsius, BlockFi, and Voyager struggle to avoid bankruptcy due to the excessive debt and leverage they accumulated.
Bitcoin miners and BTC mining companies also fell victim to this exuberance and the belief that prices would only go up until Bitcoin finally reached the long-awaited $100,000 mark that many analysts had predicted. Historically, Bitcoin miners have been elusive and secretive, but Cointelegraph managed to secure an interview with HashWorks CEO and founder Todd Esse to discuss the current state of the mining industry and his predictions for the future.
Cointelegraph:
Bitcoin is currently trading below its actual value and below the production cost for miners. The price is also below its previous all-time high, and the hash rate is declining. Typically, on-chain analysts view these metrics hitting extreme lows as a great opportunity to buy, what are your thoughts?
Todd Esse: I believe that the current prices present an investment opportunity because they don’t reflect the profitable mining margins that the industry is structured around. However, I think prices may continue to be under pressure as the mining industry undergoes a reset or reconfiguration due to the excessive leverage that has been taken on.
CT: What is the current state of the BTC mining industry? We’ve heard reports of leveraged miners going bankrupt, inefficient miners shutting down, and equipment being seized or sold at fire sale prices. The stock prices and cash flow of listed mining companies also look bleak. What’s really happening behind the scenes, and how do you expect this to impact the industry in the next six months to a year?
TE: In our view, mining still offers attractive investment returns for those who approach it selectively and have long-term goals. Much of the existing mining capacity is based on ASICs in the sub-85 TH/s range, with energy contracts that haven’t been managed as efficiently as those of traditional large-scale energy consumers.
We’ve seen this scenario before, haven’t we? Easy money combined with poor discipline leads to unbalanced risks. We may see a prolonged period in which the mining industry consolidates and allows new investment capital to enter the market.
CT: Is now a good or bad time to start mining? Are there specific on-chain or profitability metrics that you’re monitoring, or is it just a gut feeling?
TE: Typically, periods of distress and shifts in the prevailing paradigm offer advantages to new entrants. Our focus is solely on capitalizing on these emerging opportunities.
CT: If I have a certain amount of cash, let’s say $1 million, would it be a good time to start a mining operation? What about $300,000, $100,000, or even $10,000? At what range of seed funding, from $40,000 to $10,000, would it not be a good time to set up a mining farm at home or on an industrial scale?
TE: If you have $1 million in cash, it might be a good time to opportunistically acquire some BTC. The fully loaded production costs for major miners are not far from these levels. It’s challenging to maintain these levels until ASIC prices decrease further. I believe that the time for home mining has largely passed due to changes in the energy industry.
I would encourage those seeking returns to explore mining opportunities with companies like Compass Mining or other “cloud” miners whose equipment and energy contracts may offer attractive investments as the dynamics of the industry evolve.
We believe that due to current disruptions and anticipated changes in the market, as well as the growing acceptance of immersion solutions, there will continue to be attractive opportunities to build large-scale mining operations.
CT: Does Bitcoin dropping below its previous all-time high for the first time have any significant implications for the future of the asset and the industry?
TE: In our opinion, no. Historical comparisons are difficult to rely on when dealing with an emerging commodity like BTC, which is also a transformative technological asset. Miners produce BTC based on a set of inputs (computing power, access to capital, and energy), and the output price doesn’t always reflect the cost of production.
Mining BTC at scale is fundamentally similar to producing oil and gas or other commodities. Advances in drilling technology transformed North America’s position in the global energy markets.
When oil and gas prices crashed during the early stages of the pandemic, no one questioned the necessity of driving cars or heating homes anymore. Mining supports the blockchain, and proof-of-work computing will play a crucial role in transitioning our grid to a renewable energy future.
We are committed to being an innovative and constructive participant in this industry as it continues to mature.
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