A short time ago, BTC prices dropped below $4,000, its weakest price since March 2019. Since then, the digital currency has slightly rebounded to hover around $5,300 – $5,700 at the time of publishing. This 48-hour downtrend makes up a 50% loss in value from BTC’s most recent February high. Lost amid all the panic over the falling prices of the digital currency is the disproportionate impact price instability has on the BTC “miners” who power the network.
For these transaction processors, those 24 hours have been a nightmare as the production cost to produce a block rose above the value gained through the subsidy reward making overall mining unprofitable for many. This threshold is commonly known as the shutdown price amongst processors, e.g., the amount below which ASIC mining machines have to be shut down due to lack of profitability. The shutdown helps the transaction processors avoid paying high electricity costs, which is why many opt to turn the hardware rigs off instead of continuing to operate at a loss.
The shutdown price varies per region because of local electricity rates. In November, F2Pool pegged the general BTC shutdown price for miners at roughly $7,000 based on the mining difficult at that time. The calculation did not include hardware purchasing costs, mining pool fees, or maintenance fees. Any reasonable estimate shows that at the current prices, anyone mining BTC would lose money because the price was halved.
Unless there is a rapid recovery in BTC prices, we might see a shakeup in the sector sooner than expected. Large-scale transaction processors might withstand operating at a loss for some time. Smaller miners with a lower financial budget will shut down. If we use history as a lesson, during the 2018 BTC price drop, which also saw prices plunge below $4,000, smaller miners started decommissioning and liquidating unprofitable machines in mass. This departure left larger miners in a more dominate position once the price…