‘Rekt’ crypto markets leave miners poorer

06 Jul, 2018 - 00:07 0 Views
‘Rekt’ crypto markets leave miners poorer

eBusiness Weekly

Jeffrey Gogo
In cryptocurrency lexicon, they call it “rekt”. That’s when the markets are totally wrecked, like they are now, crypto prices going through one of their usual crashes — and this time it has drawn on for weeks.

You know you are”rekt” when Bitcoin falls below $6 000 for the second time in eight months, having been enticed by the digital coin’s 15-fold increase in 2017, when it reached $20 000 on global markets.

A more than 70 percent decline.
But those that bought at the end of June last year, and “hodled” — another of the crypto parlance referring to holding one’s position through a price crash — will have made more than 100 percent profit by now.

In other words, Bitcoin is still paying tidy returns on a year-on-year basis.
The crash in virtual currency prices reached a crescendo a week ago, when Bitcoin — the benchmark crypto — dipped to around $5,885, down more than 57 percent from $13 800 in January, according to data from coinmarketcap.com.

The price of Bitcoin huffed and puffed throughout the first six months of 2018, falling sharply in January and March, and edging up by about 2 percent in February, before soaring by more than a third in April to $9 244.

It fell again in May and June,19 percent and 21 percent respectively.
The total market value of the nearly 1 600 cryptocurrencies in circulation more than halved to $250 billion at the end of June — over 40 percent of it Bitcoin’s — but had since added $17 billion mid-morning July 4, as Bitcoin started going up.

The currency traded around $6 540 on Coinbase on Wednesday.
But it’s earlier decline had already paced heavy losses by the rest of the top five most valuable digital currencies like Ethereum and Ripple, which all fell between 50 and 87 percent year-to-date.

Some pundits have come up with some wild predictions, targeting a price of between $40 000 and $100 000 by the end of this year, but Bitcoin’s biggest undoing right now looks to be a lack of new money to drive volumes, issues of hacks and uncertainty around crypto regulation across the world.

Bitcoin lost over 3 percent after South Korean exchange Bithumb reported on June 20 it had lost $31 million worth of virtual coins to thieves.

Coinrail, another South Korean digital currency trading platform said in June that hackers stole roughly $37 million Bitcoin’s worth, while more than half a billion dollars was stolen at Japanese exchange Coincheck earlier this year.

Every investor knows there is some latent amount of risk with every investment, but the trend of repeated multi-million-dollar heists may be starting to spook even some of the most optimistic “whales” — yet another of the crypto slang depicting big time investors, the kind that move the market up or down – to become extremely cautious on new investments.

According to coinmarketcap.com, volume worth just about $4,4 billion of Bitcoin was traded worldwide in the 24 hours to July 4, which is a couple times below the amount of volume traded six months ago.

Over $1,5 billion worth of Ethereum was traded during in 24-hour period, a significant decline from what was traded half a year back.

Miners at crossroads
The indication is that not enough money is flowing into cryptocurrencies to help drive a comeback that will be sustainable in the medium-term.

There is concern for a lot of issues, including alleged price manipulation by the so-called “whales”, and worldwide skepticism by financial regulators on the legality of virtual coins.
In Zimbabwe, that has led to a near total collapse of the crypto markets.

Most trading has now gone underground, after the Reserve Bank of Zimbabwe in May banned virtual currencies, forcing the country’s only two digital currency exchanges, Golix and Styx24, to shut down and relocate elsewhere.

Golix is challenging the ban at the High Court. But the global markets are indeed “rekt”.
Miners aren’t making money anymore. The cost of producing Bitcoin, which is called mining — a capital and energy intensive system that uses super computers to work out mathematical problems — now exceeds the benefit of keeping those machines on.

About 3 500 Bitcoin’s enter into circulation through mining everyday, but the recent crash has left miners on tenterhooks.

Each day miners pay for the huge amounts of electricity they use to mine Bitcoin. That amount is usually deducted from the amount of money a miner earns each day from solving the mathematics problems.

Today, that money is no longer sufficient to cover such costs.
As of July 4, Bitcoin mining accounted for 71 Terawatt hours of power consumption worldwide — enough to light up a vast country like Chile — according to the Bitcoin Energy Consumption Index produced by Digicomist, an online cryptocurrency hub.

On annual basis, costs made up about 70 percent of the $5,18 billion revenue generated from Bitcoin mining globally each year, but the sustained price decline in recent months has started to change these dynamics.

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