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Crypto Winter Freezes New York Bitcoin Mining Industry

Last Updated March 4, 2021 3:19 PM
P. H. Madore
Last Updated March 4, 2021 3:19 PM

A unique characteristic of many upstate New York cities is their low energy rates. Hydroelectric dams along the St. Lawrence river give residents electricity so cheap that many even heat their homes with it. The region made perfect sense for crypto miners during the “gold rush” days of 2017 and early 2018, and the increased demand from the Bitcoin mining industry created the problem of increased electricity demand driving up the costs.

Mining Premiums & Government Action + Crypto Winter = Toxic Environment for Bitcoin Miners

Some municipalities like Lake Placid put a ban in place, learning from the experience of nearby communities like Plattsburgh. However, last year the New York State government ruled that power providers could charge miners more for electricity, to offset costs for locals. This, combined with an extended bear market for the proceeds of mining, has led to many of them closing up shop.

According to Albany Times-Union writer Rick Karlin , just one major operation remains in the region, Coinmint . The company has two facilities in Plattsburgh and one other opening in Massena, New York. The company is currently in the process of launching an ICO. Hopefully, it doesn’t go the way of the WATT token. Reportedly, the company’s laid off just 15 people during the Crypto Winter so far.

Some people cited in the article are working on dual-purpose mining technology, using the heat generated as a supplemental heating source. A local named Ryan Brienza says that bans on mining expansion put a damper on his plans, but that he is working hard to create a solution which uses crypto miners to heat homes.

Bitcoin Mining Down Across the Board

New York, of course, is not the only place to have a decline in crypto mining. Globally speaking, the number of miners has dropped.

The network difficulty for Bitcoin saw a steep drop in October and has not yet recovered to those levels. The network difficulty is a good way to measure the number of miners and hashpower on the network: the higher the number, the more miners and hashpower going into Bitcoin. October, of course, was when Crypto Winter turned truly frigid, as the price began to drop dramatically.

bitcoin mining
Bitcoin mining difficulty has charted almost in tandem with the US dollar price of Bitcoin. | Source: Bitinfocharts 

The chart above shows the correlation between difficulty and Bitcoin price. At various points in the last six months, they have run almost in tandem with each other.

Adding to the chaos, the latest iteration of Bitmain miners have a number of questionable aspects about them, according to sources familiar with the matter.

For starters, the company is allegedly offering its latest miner at a loss. Their 7 nanometer chips appear to be largely non-viable, while their cost is reportedly 300% that of the previous generation 15 nanometer chips.

Bitmain faces multiple lawsuits from users and other parties. Their initial public offering appears troubled. To top it off, the company invested heavily in Bitcoin Cash, which has been hit particularly hard by the crypto downturn. All in all, the prospects for the single dominant mining hardware company appear bleak.

GPU Mining Returning to Bitcoin?

Mining is a necessary component of the Bitcoin industry, but even a lack of specialized hardware wouldn’t necessarily put an end to it.

Other major networks like Monero and Ethereum rely on GPU mining, which in turn relies on developments from companies like Nvidia and AMD. These companies will continue to develop newer and faster hardware regardless of the state of the crypto industry. The question is whether or not their development and speed will eventually outpace the cottage mining hardware industry. Will Bitcoin once again be secured by GPU rigs around the world?

The profitability of mining is tied to numerous factors. Except in exceptional bull markets, it’s a low-margin investment. During bull markets, the pressure to expand is strong, as new money enters the space and creates fierce competition. Some miners this reporter has spoken to have talked of long-term investment strategies that neutralize the actual impact of the Bitcoin price.