In the current climate, there has been a surge of negative news that has instilled fear among many. The DeFi sector appears to be struggling, altcoins have plummeted to $0 (although this seems like a joke), and even Bitcoin (BTC) has experienced a price drop that has surprised even the most knowledgeable experts.
Greed seems to be a common theme in the recent bull market. People became overly confident and greedy, which is evident from the amount of debt and leverage being unwound by companies like 3AC, Celsius, BlockFi, and Voyager, who are now facing the real threat of going bankrupt.
Bitcoin miners and BTC mining companies were not immune to this sentiment of over-exuberance. They too believed that the price would only go up, until it finally reached the long-awaited $100,000 target that most analysts had predicted.
Bitcoin miners have always been a secretive bunch, unwilling to share their insights with the public. However, 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 the realized price and even below the cost of production for miners. The price is also lower than the previous all-time high and the hash rate is dropping. On-chain analysts typically see these metrics hitting extreme lows as a great buying opportunity. What are your thoughts on this?
Todd Esse: I believe that the current prices present an investment opportunity, as they likely do not reflect profitable mining margins in the current industry structure. However, I do think that prices may continue to be under pressure as the mining industry undergoes a reset or reconfiguration.
CT: What is the current state of the BTC mining industry? We have heard reports of leveraged miners going bankrupt, inefficient miners shutting down, and mining equipment being seized or liquidated at low prices. Listed miners’ stock prices and cash flow also look bleak. What is happening behind the scenes and how do you think this will impact the industry in the next six months to a year?
TE: In my opinion, mining still offers attractive investment opportunities for those who are selective in their approach and have long-term goals. Much of the mining capacity currently in use is with ASICs in the sub 85 TH/s range, and the energy contracts have not been managed in the same way as traditional large-scale energy consumers. We have seen this scenario before, where easy money and poor discipline lead to unbalanced risks. It is likely that we will see a period of consolidation in the mining industry, which will allow for new investment capital to enter the market.
CT: Why is now a good or bad time to start mining? Are there specific on-chain or profitability metrics that you are looking at, or is it more of a gut feeling?
TE: Typically, periods of distress and shifts in the accepted paradigm offer advantages to new entrants. Our focus is on taking advantage of these emerging opportunities.
CT: If I have a certain amount of cash, such as $1 million, $300,000, $100,000, or $10,000, is it a good time to start mining? At what range of seed funds, from $40,000 to $10,000, would it not be a good time to set up a mining farm?
TE: If you have $1 million in cash, it might be a good time to opportunistically acquire some BTC. The fully loaded production prices for major miners are not far from these levels. However, it may be difficult to maintain these levels until ASICs drop further in value. I believe that the time for home mining has largely passed due to new dynamics in the energy industry. I would encourage those looking for yield to explore mining opportunities with companies like Compass Mining or other “cloud” miners, as their equipment and energy contracts may offer attractive investments as the industry dynamics change. We believe that, due to current and expected disruptions in the market, as well as greater acceptance of immersion solutions, there will continue to be attractive opportunities to build mining operations at scale.
CT: Does Bitcoin’s price dropping below its previous all-time high for the first time ever have any significant future implications for the asset and the industry?
TE: In my opinion, no. It is difficult to rely on historical comparisons when dealing with an emerging commodity like BTC, which is a transformative technical asset. Miners produce BTC based on a set of inputs, such as computing power, access to capital, and energy, and the output price does not always reflect the cost of production. Mining BTC at scale is not fundamentally different from producing oil and gas or other commodities. Improvements in drilling technology transformed North America’s position in global energy markets. When oil and gas prices crashed during the early stages of the pandemic, no one questioned the need for cars or heating homes. 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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