Bitcoin, Crypto Mining News, Cryptocurrency, News & Updates

Bitcoin Mining’s Future in 2021

  • Limitations on the supply of hardware will hamper the growth.
  • The key for miners will be to plan for a possible BTC drop.
  • 2021 may bring consolidation to the crypto mining industry.
  • No notable technological innovation in the sector is estimated this year.

Bitcoin (BTC) mining has had a few of the less profitable years. After the highs of late 2017 and early 2018, earnings by March 2020 to as little as USD 0.0693 per day for every 1 THash of mining power (having been USD 3.139 in January 2018).

Nevertheless, with the bull market of late 2020, Bitcoin has strongly risen. Mining profitability has firmly crept up to USD 0.222, denoting a rise of 200% since May’s Bitcoin halving.

Given that analysts claim bitcoin still has some way left to rise, this is a reassuring message for the mining industry, which looks set to have a consistently better 2021 than 2020.

This is what everyone within the mining industry estimates will happen, with industry figures informing Cryptonetwork.News that they anticipate the sector to expand firmly in 2021. They also expect to see a degree of market consolidation within the space.

While it’s unlikely that the new year will provide mining with technical innovations, we may witness a gradual shift to renewable energy sources, as well as the development of regulation that explicitly addresses mining.

Bitcoin Price Growth = Mining Growth

The 200% rise in mining profitability since May is an informative value, given that the price of bitcoin rise by more than 230% over the same timeframe. This is substantial evidence that bitcoin will continue to increase and drive mining profitability, despite 2020’s halving.

In other words, considering that the price of bitcoin will rise to, say, USD 100,000 by the end of 2021, the mining industry will expand in parallel.

With BTC continuing to make new all-time highs, the mining industry will continue to grow at a record pace. As more miners enter, the network’s hashing power will set new highs as well,” said Peter Novak, the president of US-based mining entity Blockcap.

Bitcoin hashrate:

Source: bitinfocharts.com

This is pretty much the consensus view among industry participants. However, Tim Rainey, Chief Financial Officer of US-based powerplant-cryptomining hybrid Greenidge Generation, said we might see a temporary contraction at the beginning of 2020.

Bitcoin’s hash rate and difficulty will continue to follow its price through 2021 despite some temporary dips in hash rate near the beginning of the year as older generation machines, most of which are based outside of North America, go offline,” he stated.

Complications and difficulties

This rosy picture is complicated by several factors, however. Firstly, there’s the ever-present possibility that bitcoin’s price may take a significant dive in 2021.

In the mining industry which requires leverage to operate at scale, the key for industry participants will be to manage their leverage and be prepared for any pullback,” said Peter Novak. “If we see [a big] retraction again, overleveraged mining companies will feel real pain in 12 to 18 months.”

Related to this is that, with mining rewards at a low of BTC 6.25 (and due to halving again in 2024), entry into the sector will be restrained by the increasing need to have a long-term, sustainable business model. This is the view of Igor Runets, the CEO/co-founder of BitRiver, a significant provider of colocation services for cryptocurrency mining in Russia and CIS countries. He stated that, 

“The rise in bitcoin’s exchange rate this year will see a different effect on the mining industry than it did in the past … only those business models that are designed for the long term will be able to succeed.”

Source: bitinfocharts.com

Runets is another figure who predicts that we may witness an initial and temporary drop in difficulty as less efficient mining machines and operations go offline. At the same time, F2Pool’s Qingfei Li said that the mining sector’s growth would also be hampered by constraints on the supply of mining hardware, which has been tightened further by the coronavirus pandemic.

He mentioned that,

“The mining industry will grow in [this] year. But it is difficult to see rapid growth like the end of 2017 to the first half of 2018, because the manufacturer’s production capacity is limited.”

Consolidation, shift away from China.

Due to the tightening of profit margins and ongoing increases in mining difficulty, 2021 may likely bring consolidation to the mining sector. This means we’ll see smaller operations either fall away or merge with more extensive procedures, as a few big players take a more significant share of the mining pie.

We expect to see more consolidation to take advantage of the operating efficiencies that come with scale. With that in mind, even though Blockcap is already one of the largest mining operations in North America, we are actively looking to acquire other best-in-class miners,” said Peter Novak.

Founded only at the end of 2020, Blockcap itself is a product of this consolidation process, given that it merged the infrastructure and resources of five pre-existing mining operations.

On the other hand, the ongoing shift away from China will continue in 2021, bringing several additional benefits in addition to more excellent geographical dispersion.

Tim Rainey stated that,

“We may also see a reduction in the seasonal difficulty swings as cryptocurrency mining becomes increasingly institutionalized and less China-centric.”

Source: blockchain.com

New Technologies? Renewables?

You might expect that, as the mining sector heats up and becomes more competitive, new mining hardware and technologies will emerge in 2021. However, that doesn’t seem to be the case, at least not if you’re hoping for some meaningful breakthrough or innovation.

Qingfei Li shared,

“No major technological innovation in the mining sector has been heard of so far [for 2021],”

Igor Runets agrees, suggesting that there won’t be “significant improvements in the efficiency of mining hardware” in 2021. Still, he estimates that there will be a steady transition towards more eco-friendly mining.

We will see a significant increase of interest, especially from institutional investors, in greener cryptocurrency mining. We at BitRiver believe that the future of cryptocurrency mining will be more sustainable,” he said.

Tim Rainey also foresees more generous use of renewables despite the lack of significant technological advances.

The technology for mining Bitcoin will not see a significant change. As for energy trends, most cryptocurrency mining operations in North America use cleaner alternatives to coal or oil and I believe that will only increase in 2021,” he explained.

That said, Qingfei Li suspects the use of renewable energy will remain relatively minor in 2021, despite enjoying some expansion. “The application of renewable energy in mining is not yet mature,” he told.

Regulation imminent

Lastly, with the US Securities and Exchange Commission taking Ripple by the horns and the EU publishing its regulatory framework on blockchain/crypto, 2021 may also witness the arrival of regulations specifically target mining. However, few industry figures are precise on what any such rule will look like.

Tim Rainey stated that,

“We might see more regulations specifically for cryptocurrency mining after more pressing regulations around cryptocurrency usage have been finalized.” 

In July 2020, Russian President Vladimir Putin signed the law on “Digital Financial Assets and Digital Currency,” which will come into force in January 2021. While the bill itself does not mention cryptocurrency mining in any form, Russia’s Ministry of Finance seeks to lay out some regulations for cryptocurrency mining,” added Igor Runets.

Despite what future mining regulations will stipulate, it’s safe to bet that the mining industry will grow in 2021 in tandem with the development of the crypto market. And while the chance of price falls always makes mining a possibly risky endeavor, this risk seems to be declining as more institutions and corporations move into bitcoin and crypto more commonly.

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