After the BTC halving, although the market did not flourish, the payback period of BTC mining did become longer compared with the previous sweet spot of 10 to 12 months, and the mining competition, in general, did change.
The change mainly covers three aspects
The participants have changed. As the payback period of BTC mining grows longer, participants in mining are slowly transitioning from veteran miners to traditional institutions. In terms of investment philosophy, traditional institutions significantly differ from miners. During the first four years of mining, the payback period is generally less than two years, which is much more appealing than conventional assets.
Apart from mining, miners have learned to use financial tools to protect their interests. Right now, the most prevalent financial services among miners are borrowing and hedging.
Borrowing: When miners expect the token price or mining revenue to rise over the long run, they will borrow for higher returns. There are plenty of providers of financial services such as token staking or even mining machine staking. The critical consideration for borrowing is whether the rise of the token price can outpace the interest rate of crypto loans.
Hedging: When miners expect the token price to drop, they will lock up the future mining revenue at high prices in advance. For instance, upon making substantial investments in certain mining machines, miners may be concerned with the potential risks. In this case, they can lock up the current token price to adjust the payback period as appropriate. By doing so, miners reduce the risk of large losses at the expense of some excess returns. For miners, the most basic hedging service is hedging through crypto loans (or selling tokens in advance). However, as financial derivatives diversify and expand, more miners will choose the hedging strategy of combining options and futures. Apart from being more flexible, this strategy may also bring excess returns generated by option premium.
Miners are focusing more on new types of mining. Mining involves more than BTC. GPU-based ETH mining, mining of lesser-known tokens through GPU & FPGA, and FIL mining via hard drives may witness new opportunities and more possibilities.
Since the beginning of the bull market in 2018, after two uneventful years, GPU has taken the center stage once again. As both veteran miners and beginner miners rush to GPU mining, the GPU supply chain is facing great pressures.
Advantages of GPU mining
First and foremost, the potential of ETH.
This year, thanks to the ETH surge, mining revenues have continued to rise. For example, when OXBTC was trying to offer services backed by P106 miners, the mining revenue of one P106 miner stood at only a little over $2 per day. In contrast, at recent highs, the daily revenue of one P106 can reach $6 to $7. At the moment, the payback period of many machines has been shortened to 250 days or even less, which is far shorter than that of BTC machines.
Secondly, as the number of ETH transactions increases, the transaction fee is on the rise.
DeFi ecosystems have boomed over recent months, which has enabled tenfold and hundredfold token growth, making the ETH network more congested. Many DeFi projects suffer from high volatilities and significant risks. Moreover, the rising popularity of DeFi projects further congests the ETH network with massive transactions. This in turn makes it more expensive to transfer ETH. In the past two months, the ETH transaction fees accounted for approximately 20%, which means that the daily mining profits have increased by about 20%. Recently, the daily transaction fees peaked at 20,000 ETH, whereas the daily block reward is only 13,000 ETH. In the long run, excessive service fees will do harm, but as long as the ETH ecosystem grows steadily and new trending applications or protocols continue to pop up, miners can always reap the benefit of such unexpected perks.
Thirdly, ETH's algorithm involves DAG, which will occupy the memory of GPUs.
By the end of this year, the DAG size will be close to 4G. By then, a large number of 4GB GPU miners will no longer be able to mine ETH. According to initial estimates, there are more than 3 million 4GB GPUs in the ETH network, accounting for 50% of the network hash rate. Owing to the strong performance of ETH this year, many of these machines may be upgraded to 8GB GPUs. However, due to upgrade failures and time costs, the 4GB machines will still suffer a certain loss. As such, though we cannot estimate the specific number at this stage, a loss of hashing power is very likely.
Fourthly, ETH mining features a low proportion of electricity fees in the total cost and more stable returns.
At the moment, electricity accounts for 15% to 25% of the ETH mining cost, which is much lower than BTC mining. At the same time, the supply of GPU miners will not surge as the production capacity of GPUs is limited. Therefore, the hash rate of GPU mining is relatively stable, and so are the profits of USDT-margined contracts for miners.
Fifthly, the payback period of ETH mining has been shortened.
Due to the price surge, the ETH transaction fee remains high. At the moment, the payback period of mainstream GPU miners fluctuates between 200 and 300 days, which has been shortened compared with earlier statistics. The situation has been reversed because the payback period of GPU miners is normally longer than that of ASIC miners used for BTC mining.
Sixthly, compared to ASIC, GPU miners come with higher scrap values, which makes mining more secure.
GPU mining: risk analysis
As ETH transitions to PoS, the most concerning factor is the ETH2.0 progress.
The key purpose of ETH2.0 is to improve the efficiency of ETH 1.0 while maintaining decentralization. By the time ETH 2.0 comes, users can deposit their ETH holdings in nodes to get returns. That is, ETH 2.0 will replace PoW with PoS. By then, GPU miners may no longer be able to mine ETH and need to be readapted for other tokens or other uses.
For mining farms, GPU mining is highly demanding in terms of operation and maintenance.
Miners need to look for farms that are experienced in the operation and maintenance of GPU mining. Moreover, they should also find reliable manufacturers to source quality GPUs with sufficient hash rates. Plus, superior GPUs facilitate smooth operation and maintenance and ensure standard hash rate performance.
There is a high risk of price correction as the ETH price has soared.
Some miners think that ETH has grown too much, and the mining profit will plummet in the event of price corrections. To cope with such risks, users can hedge their ETH holdings at high prices for definite returns. For risk-averse users, OXBTC usually recommends hedging the mining profits for 3-6 months to recover most of the costs and then staking the subsequent profits for higher returns.
If you are interested in GPU mining, contact OXBTC, and we will help you work out a cooperation plan that fits your budget to seize the opportunity of GPU mining.
Though the era of huge profits for BTC mining has ended, mining remains a lucrative business. FIL mining based on hard drives is likely to be the next mining segment that will flourish.
Based on the market expectation for FIL, the short-term forecast of the project is as follows:
- FIL will receive much attention;
- The early circulating supply of FIL will be scarce；
- FIL will be favored by the major public chains and traditional institutions around the world.
This year, FIL is sure to be a key trend for the crypto community. In addition, FIL features a deposit mechanism. In the future, as more effective data are stored on the FIL network, users need to deposit more FIL. This will reduce the circulating supply of the token and shoot up the FIL price. In the long run, based on the underlying technical features of IPFS and Filecoin, the ecosystem will give rise to a great number of applications (e.g. Internet of Things, edge computing, smart healthcare, smart city, etc.) in the fields of distributed data storage, secure storage, permanent storage, and data right confirmation.