Some Bitcoin miners in the world are paying nothing for their electricity. And we should all be worried about them. Why? Because their equilibrium point is so low that it could bring the whole Bitcoin market own as it tries to achieve its ambition of being at seven figures per token.
The Chinese police brought down a Bitcoin mining gang that stole about USD 3 million worth of electricity and used it to mine BTC. They owned about four thousand pieces of hardware.
It’s not known yet how many coins the gang managed to produce, but given the amount of hardware they owned and the electricity they used, the chances are that it wasn’t negligible. The problem is that this illegal operation is probably just one of many such gangs operating in China, where 80% of the world’s Bitcoin mining takes place.
The cost of Bitcoin (BTC) in China
Mining a Bitcoin in China costs about $8000. This is mainly because the electricity there costs about USD 0,045kWh. But when the mining is done stealing electricity, then the only costs are the mining hardware, personnel, and rent. Power is the main expense, and it’s also the main reason why mining Bitcoins is not profitable in many countries of the world.
The cost of electricity has a drastic impact on Bitcoin’s mining profitability.
The current cost of mining in China ($8k) is already lower than the token’s market value, which is around USD 11.500,00 as we write this. But if you don’t pay for electricity, then it’s way lower than the global price.
It means that illegal miners in China are having a field day and making insane profits. And they will remain profitable even as a new bearish market arrives, which is unavoidable sooner or later.
The incentive to sell their BTC quickly is very high, and it can only increase volatility and bring the prices down. Also, if they pick a day of low liquidity (the weekends are usually like that), they could affect a huge change in the market with a relatively small amount of money. But the low cost of producing BTC with “free” electricity itself increases the risk for the market to become depressed.
During last year’s crypto winter Bitcoin hit a yearly low in which the breakeven price was of $3550. Miners were losing money by selling their tokens, so it was a better idea to hold them and wait for the market to recover. But if your electrical power is free, you just don’t need to wait because you’re profiting anyway. And that’s how prices can remain low.
So we can only hope that the Chinese government will keep hunting and shutting down illegal coin mining. Granted, the government hasn’t embraced cryptocurrencies, especially Bitcoin, but it remains in its own interest to protect the Bitcoin environment as much as it’s in Bitcoin’s.
The work and the resources back the value in Bitcoin it takes to produce new blocks for the chain. If illegal mining makes it so much cheaper, it deteriorates the value for everybody involved in the network, miners or not.
Disclaimer: The presented information is subjected to market condition and may include the very own opinion of the author. Please do your ‘very own’ market research before making any investment in cryptocurrencies. Neither the writer nor the publication (TronWeekly.com) holds any responsibility for your financial loss.