Interview Synopsis

Cryptocurrency mining – H2 2021 sector update & profitability outlook

  • Private Equity
  • TMT
  • North America

Cryptocurrency miners are enjoying “super-high profits”, thanks largely to the steep run-up in the price of bitcoin and lagging network capacity, an industry expert told Third Bridge Forum. The former executive at Bitfury Holding BV is optimistic that profit margins of up to 90% will continue through end-2022 — and “it could be 2023 before we see material equilibrium being reached again on the network and returns normalising”.

Crypto mining momentum showing no sign of waning

The lag between the price of bitcoin and network difficulty, or the hash rate, is also “getting longer and longer as the cycles progress”, we heard. “The reason, I think, for that is as the network grows… it just takes the physical world longer to respond.” The Interview suggested that gross profits in the region of 40-50% will signal an equilibrium — but “there’s huge growth still in capacity on the network before we hit that point”.

The global shortage of wafers, the silicon on which transistors are placed to build a chip, is also impeding network capacity. To grow the network “the way some people think it will grow over the next 12 months” (reaching double today’s capacity by end-2022) would require an investment of USD 5-10bn in application-specific integrated circuit (ASIC) servers. Ultimately, “the physical world is finding it harder and harder to keep up”, we’re told.  

Looking more closely at hash rates, which fell roughly 38% from May to July 2021, the specialist expects a “fairly even and incremental” upward trajectory. “As we start to see the MoM trends, I think you can somewhat extrapolate and perhaps assume that we get a little higher growth [in] H2 2022.” However, there are many factors at play, including the impact of China’s crypto mining crackdown.

The Interview also revealed insights on how shifts in the hash rate impact ASIC pricing, as well as the potential vertical integration of power generation and mining, and the relative strengths and weaknesses of key mining players.

To access all the human insights in Third Bridge Forum’s Cryptocurrency mining – H2 2021 sector update & profitability outlook Interview, click here to view the full transcript. 

The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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