One reason that miners often pay attention to the price of bitcoin is because miners have a strong positive relationship to its volatility. And as bitcoin’s dollar-denominated value declined sharply this month, mining hardware prices followed suit.
At its recent lows, bitcoin was trading near $17,000, a decline of over 60% so far. Over the same period, the price of the most efficient miners is down 41%, as detailed below.
Looking at the relationship between the price of bitcoin and bitcoin miners provides useful insight into the fluctuations in the price of bitcoin and the reaction of the mining sector to deposits of discounted hardware.
This article gives an overview of current market pricing data for bitcoin miners, its correlative relationship to bitcoin, and discusses how and when miners may consider engaging with the Summer Hardware Sale as buyers.
Inside the Latest Bitcoin Mining Hardware Pricing Data
The lowest and least efficient installments of mining hardware have seen the smallest year-on-year price drops, according to market data curated by Luxor Mining. Machines with capacities above 38 joules per terahash (J/TH) and less than 68 J/TH have seen a drop of nearly 40% since January. Over the same period, bitcoin is down by almost 60%.
Although the recent price drops for bitcoin and some miners have been similar on a percentage basis, the downtrend did not begin or fully progress alongside each other. The line chart below shows two peaks in the price of bitcoin during April 2021 and November 2021. Readers will notice that miner prices (data shown for the top-two efficiency levels) did not peak until about a month later in both cases.
Even though machine prices are closely related to the price of bitcoin, they still lag behind it. The following section gives a brief explanation of why, but potential buyers can often use bitcoin price volatility as a near-term indicator of where machine prices are likely to be.
Why miners price follow bitcoin price
The price of bitcoin mining hardware is closely related to the price of bitcoin for two major reasons.
For one thing, since the hash rate typically follows or lags behind bitcoin’s price movements, the price of bitcoin mining hardware — the source of the hash rate — should also be expected to lag. The reason for this is easily explained: for example, when bitcoin is in a constant downtrend, some miners who are experiencing dwindling profits choose to unplug their hardware and even liquidate. which introduces more selling pressure on the mining hardware market.
This same scenario reverses during bullish periods when miners – encouraged by climbing mining revenues – accumulate and deploy new machines. Of course, market movements in every trend (up or down) are never neat, but in general, this analysis explains the incentives that cause machine prices to follow bitcoin prices.
Their basic function as a “money printer” also tends to lag the price of mining hardware behind bitcoin, making them reluctant to sell hastily to their owners, who are naturally bullish in the long run. Between the operating costs, capital expenditures, and overall bullish ideology required to start mining, this sector of the bitcoin economy is always the one to benefit the most by a significant margin. When the price rises, miners are eager to buy higher hashrate. But when the price of bitcoin begins to plummet, miners with low profit margins and poorly planned operations – despite their bullish visions – are forced to halt hashing and often phase out their hardware. In short, Internet money printers are valuable, and no one is eager to sell them.
It is worth noting that a slight drop in the price of bitcoin is usually insufficient pressure to separate a miner from their machines. But continued declining action like miners have been taking over the past several weeks could eventually force low-profit miners to raise cash by selling hardware.
where to buy bitcoin mining hardware
The market for mining hardware is now larger and more sophisticated than at any time in bitcoin’s history, thanks to a number of companies that have created hardware markets to serve retail miners. However, many of these resale markets are often used by large institutional buyers who are not working directly with manufacturers, such as Bitmain or MicroBT.
Some of the major mining hardware markets are run by Kaboomracks, MiningStore, Upstream Data and Compass Mining. Other markets exist, but the hardware market is full of scams. The impact of the drop in bitcoin prices has already been seen in the machine market, with, for example, low-efficiency hardware being cataloged on a large scale by miners via Kaboomrack. The company also published a notice that limited its availability to accept older machines like the Antminer S9s, possibly looking to end a potential deluge of miners.
Mining pools such as Foundry and Luxor also provide hardware brokerage services for serious miners. But beyond the company names listed in this article, every potential buyer should exercise great caution before sending any funds to anyone purported to be a seller of hardware.
Retail miners (aka, plebs) can also buy directly from manufacturers. Sometimes website purchases are restricted or unavailable for small quantities (usually at times of red-hot buyer demand in a bull market), leaving only institutional buyers who have direct access to a team of manufacturers capable of placing orders. There is access. But in the current market, manufacturers heavily discount dollar-denominated machine prices, and their website listings abound.
How will bitcoin miner prices change from here?
If the bitcoin price starts to reverse and rally significantly, miner prices will eventually follow suit. Further sales will also drive down hardware prices. And in that scenario, it is impossible to predict how low and for how long the miner’s price will drop.
However, a drop in the bitcoin price is sure to trigger more machine supply in the resale market as less efficient mining operations will be forced to liquidate some assets. In any case, the price of bitcoin will often act as an indicator for the prices of mining hardware, and in general, miners can plan their machine purchases accordingly.
This is a guest post by Jack Voel. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.