Crypto mining recovery emerges amid expectations of cheaper energy

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Crypto mining companies have been amongst the most heavily hit by the collapse in Bitcoin Core (BTC) prices. But following some 18 months of challenging trading, some indicators are now showing outlook for the sector turning more positive.

A report in digital assets journal Diar noted that while miner revenues had fallen to fresh lows in January, there were some signs of a pending recovery for mining companies. However, Diar analysts warned that increasing hash power demands were still putting margins under pressure.

According to the report, “…miner revenues last month fell to the lowest intake since August 2017. To make matters slightly more difficult, miners running optimal equipment and who have secured wholesale electricity prices have seen their gross margins squeezed requiring a massive deployment of hash power in order to stay afloat. But this month did see a small uptake, the first time since Bitcoin’s price boom.”

The news comes at a time of increasing optimism from mining firms in China over expectations of cheaper energy prices, with the imminent rainy season expected to produce a boom in cheap supply.

According to reports emerging this week, a number of Chinese firms are rapidly expanding capacity in anticipation of the rains, with the weather expected to drive the region’s vast hydroelectric capacity and lead to lower cost energy for mining companies.

Xun Zheng, CEO of Hashage, which operates a chain of mining farms in Sichuan, was quoted by CoinDesk saying it was still possible for mining firms to capitalise on the excess supply, though it was now more important than ever to investing in scaling mining resources.

Zheng told the news outlet, “We used to think the overall supply would be larger than the demand. But the total quantity of ASICs on the market, plus new machines produced by major manufacturers, can certainly fill in the total supply. The question now is how many miners will take this bet.”

Tyler Xiong, chief marketing officer at wallet service and mining pool Bixin, said electricity cost would provide a key competitive advantage for remaining mining firms. He explained to CoinDesk, “In this round, the market’s dominance will shift to miners and whatever farms that can get the cheapest electricity cost. They are the ones that can really rock.”

“Mining equipment makers probably won’t have much sense of participation in this round [in terms of selling new machines] since people may prefer used ones. So, the market is no longer on their side now,” Xiong said, according to the report.