Overview of the Crypto Mining Industry in 2018: Will the Struggles Extend to 2019? Major mining conglomerates in the crypto sector recorded large losses, struggling to deal with market conditions. Major mining conglomerates in the crypto sector recorded large losses in 2018, struggling to deal with market conditions. Can they recover this year? 21 Total views 0 Total shares New Year Special 2018 has been a difficult year for Bitcoin and crypto miners. Some of the largest multi-billion dollar businesses in Asia recorded losses in the range of hundreds of millions of dollars.
As Japanese internet conglomerate GMO and the industry’s largest mining equipment manufacturer, Bitmain, reportedly struggled throughout the year, the entire sector is said to have ended the year with significant losses, following the trend of the two companies. $320 million loss for GMO
GMO, one of the most influential internet companies in Japan, recorded a loss of over $320 million in the fourth quarter of 2018. Following what the company described as an “unexpected loss,” the firm officially pulled out of its mining business. In June, the Japanese company allocated around 10 percent of the firm’s capital and resources to engage in an ambitious mining venture with the vision of competing against Bitmain .
At the time, the company established a dedicated cryptocurrency mining equipment development department to create its own 7-nanometer (nm) ASIC chips to run a large-scale mining facility. The GMO team said in June:
“We will use cutting-edge 7 nm process technology for chips to be used in the mining process, and are currently working on its research and development with our alliance partner having semiconductor design technology to realize high performance computer for mining. It will be possible to reduce power consumption compared to the existing mining machines with the same performance, and achieve a computational performance of 10TH/s [transactions per second] per chip.”
The company, despite its large amount of capital and resources, failed to take the size of the operations of Bitmain into consideration. As early as mid-2017, Bitmain was seeking a valuation of over $15 billion, anticipating a successful initial public offering (IPO) in Hong Kong.
Currently, GMO is valued at just over 169 billion yen, equivalent to around $1.5 billion. That is, a mere 10 percent of Bitmain’s valuation earlier this year.
Initially, GMO was convinced that, as a major internet conglomerate in Asia, it could outpace Bitmain and secure a big portion of the market share of the cryptocurrency mining industry. However, as a report by BitMEX would later reveal, Bitmain was ready for such competition and was willing to operate at a loss to squeeze out its competition.
On Christmas Day, Dec. 25, GMO called off its mining operation, absorbing the $320 million loss and halting the development, manufacturing and sales of its mining equipment immediately. A public document released by GMO read :
“After taking into consideration changes in the current business environment, the Company expects that it is difficult to recover the cryptocurrency-mining-business-related assets through selling mining machines, so the Company has decided to stop the development, manufacture, and sales of mining machines, thereby recording an extraordinary loss. GMO Internet will record losses from the transfer of receivables of approximately JPY 17.5 billion and allowance for doubtful accounts of approximately JPY 3.5 billion, recording an extraordinary loss of approximately JPY 24.0 billion in total on the consolidated accounts and the individual accounts.” Even Bitmain struggled
The main competition of GMO was Bitmain, and GMO set out to outcompete the China-based cryptocurrency mining equipment manufacturer since its inception.
But, according to a report released by BitMEX Research, Bitmain sold many of its S9 miners, its flagship product, at a loss throughout the year, in a likely attempt to establish its dominance over the sector by engaging in a price war with its competition, which it knew other companies in the space could not handle.
In August, when the report of BitMEX Research was released, the price of Bitcoin was still hovering at around $7,000, above the breakeven cost of mining . As such, by the end of the third quarter of 2018, miners in the cryptocurrency space were still making profits and Bitmain was able to sell its Antminer S9 to mining facilities across the world.
Due to relatively high demand for mining, at the time, Bitmain could handle losses at the cost of creating a more inefficient environment for its competitors. But, as months passed by and a full-blown bear market hit in November, as the price of Bitcoin fell below the breakeven cost of mining at $6,900 , Bitmain also started to struggle.
A paper by BitMEX Research released on Aug. 30 read :
“This analysis implies Bitmain are currently loss-making, with a negative profit margin of 11.6% for the main S9 p...