Is Mining Dead? How the Mining Industry Can Adapt to a Bear Market: Cryptotrader Andrey Elinson

The beginning of 2023 did not bring any long-awaited changes to the mining industry. Instead, the situation remains challenging and tense. The market decline observed throughout the last year, the bankruptcy of several mining companies, and the drop in the cost of mining devices all seem to indicate that mining is dying and that we are witnessing its prolonged agony.

Meanwhile, Andrey Elinson, the founder of an international school of cryptocurrency trading, points to a number of signs suggesting that “the rumors of [the mining industry’s] death are wildly exaggerated.” Moreover, the expert believes the industry is confidently adapting to the bear market. During this period, it is crucial to choose the right mining strategy by taking an honest look at your options, risks, and goals.

Market Decline is Not a Catastrophe

“No one has any doubts that the ‘bears’ have a firm grip on the market. But this is a natural market phenomenon. When demand is high, prices go up in a bull market, and manufacturers make money. If demand goes down, the prices follow, causing the manufacturers to suffer.

Then comes another growth period… While they do have their differences, cryptocurrencies are still as much a market product as anything else,” says Andrey Elinson.

He notes that cheaper cryptocurrencies have naturally led to a drop in revenues from digital asset mining. The situation was made even worse by the increased complexity of mining operations, climbing electricity rates, and a substantial rise in the hash rate. In some cases, the profitability of mining enterprises plunged to the cost of production.

Andrey Elinson thinks there is no decisive answer to how long the bearish trend will prevail. In 2018, the decline lasted about a year, followed by a short period of growth in 2019 and another collapse. In total, the bearish trend persisted for 463 days. In some ways, the situation was even worse than today.

While at the end of December 2022, the average miner income per kWh of energy consumed was $0.108, in 2019, it fell as low as $0.083. “The trend we are now seeing started in April 2022. If we compare it with past periods, we can assume that it will last a few more months, although it is far from certain that the new cycle will mirror the previous one. More optimistic forecasts suggest that growth will resume as early as March 2023,” says the expert. Regardless, the industry will be able to prepare for the next Bitcoin halving in 2024, when its reserves will be sold.

 The Mining Industry is Waiting for Positive Signals

The number of mining companies that will survive the crypto winter depends on how long the bearish trend will persist, as for many of them, each new day may be their last. At risk are those who have to pay too much for electricity, those who have inefficient equipment, and those who have amassed large debts and are thoughtlessly spending the cryptocurrency they have mined. Andrey Elinson believes this brings us to the main conclusion. “For the bearish trend not to ‘break’ the mining industry, it needs to adapt.

Market players need to come up with a survival strategy and master new business development tools,” he says. First, we should say goodbye to the pointless low morale  and understand that the cryptocurrency market is cyclical. When it begins to grow again, the cost of the mined cryptocurrency will increase many-fold. In addition, the history of the crypto market gives no reason for pessimism.

Regardless of Bitcoin’s exchange rate, the mining industry has been growing rapidly in recent years. This is true both for the revenue from the first mined cryptocurrency and the amount of electricity consumed.

The release of new mining GPUs and the accumulation of crypto assets by major players may well signal improvement. “Bitcoin’s growing hash rate, which just may indicate the arrival of large companies in the mining game, instills optimism,” notes Andrey Elinson. He also points out the release of new energy-efficient mining equipment (e.g., by manufacturers such as Canaan, MicroBT, and Bitmain).

Even Intel has decided to enter this sector, says the expert. According to Andrey Elinson, some companies have benefited from the current situation by buying their competitors’ assets (for example, Foundry, CleanSpark, and Crusoe) or obtaining large discounts from equipment manufacturers.

 Investment Horizons

Secondly, the cryptotrader says we need to learn to think in terms of investment horizons. “Now is a good time to build up an asset or enter it at a sagging price. Mining equipment costs several times cheaper than a year ago. You could easily get hold of powerful mining facilities with minimum investment,” the expert explains. Not to risk too much, patient market players buy hardware step by step, for example, once a quarter, and maintain liquidity in case equipment becomes even cheaper.

“When the market goes up, such ‘goods’ can easily be resold at a profit. Moreover, even if the situation does not improve within a year, GPUs can be used to make a profit in other ways as they are actively utilized in augmented reality infrastructure and cloud gaming. These sectors are rapidly growing and are in dire need of additional computing power,” explains Andrey Elinson.

The bear market has one more advantage, says the expert: the relatively low cost of coins. “With the next Bitcoin halving just around the corner, there is less and less time to mine low-cost coins. They will go up in price when demand rises. That is what happened during the 2012, 2016, and 2020 halvings,” he notes. However, mining’s profitability depends a lot on the cost of electricity. It is usually the market players with the lowest incoming rate and the most energy-efficient equipment who win.

 No “Panic” Sales

“In some ways, the mining industry’s problem has been the arrival of numerous new players who panic at the sight of a falling market. They are in a hurry to sell assets and suffer losses, thereby creating a disturbing informational background,” says Andrey Elinson, pointing to the importance of keeping a cool head and making sound judgments.

He adds that it makes no sense to hastily get rid of assets or urgently spend the mined cryptocurrency (for example, to pay for electricity or hosting). Experienced market players recommend postponing the sale of coins until their price goes up and they can generate a high yield. When that happens, equipment prices will also rise.

Summing up, the crypto market is not going through anything extraordinary so far. The bearish trend should not scare miners because the sector’s long-term growth trend is not going anywhere, says Andrey Elinson. “A decline is a good chance for the market to cleanse itself and for new players to come. The main thing is to keep one’s composure, avoid risks, and follow long-term trends,” summarizes the cryptotrader.