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Depressed cryptocurrency prices are having a greater than expected impact on mining businesses. This is most apparent in hardware manufacturers, along with the stock price of publicly traded miners.
Hardware, specifically GPUs and ASICs, were selling for a large premium (sometimes 200%+) at the end of last year and into 2018. There was simply more demand than supply. Manufacturers saw the increasing demand and ramped up production. As crypto prices dropped through Q1 and Q2 2018, mining became less profitable and retail interest waned.
The market has now inverted and there is a surplus of hardware, which is being sold at discounted prices. A great example is Bitmain’s S9 Antminers, widely considered the most popular Bitcoin mining hardware. Earlier this year, Bitmain was selling one machine for ~$2,500 and secondary sales were fetching as much as $4,500. Today, the same S9 Antminer is selling for ~$600.
Additionally, Bitmain continues to offer discount coupons to larger customers in an effort to offload excess inventory. The pain isn’t only being felt by Bitmain though. AMD and NVIDIA, two of the largest GPU manufacturers, have either missed earning expectations or commented on lower projections based on decreased demand.
Hardware manufacturers aren’t the only companies feeling the pain though. Publicly traded mining companies are getting punished by investors. Hive Blockchain (TSX) is trading around $0.80 per share, down from an all-time high of $5.37 in November. Hut 8 Mining (TSX) has a shorter history, but is currently trading at $2.75, which is down from the $5.28 all-time high. Lastly, MTG Capital peaked at $7.10 in December and is now trading at $0.72 per share.
Stock prices obviously don’t tell the whole story. Each company has continued to invest in infrastructure during the bear market. They are constantly improving their capacity, and in turn, their financial outlook. Unfortunately, stock prices appear to follow public sentiment for the crypto markets, rather than the actual value of the respective businesses.
Although hardware manufacturers and publicly traded miners are struggling, I don’t anticipate this to last forever. As the crypto markets recover, we should see a resurgence of these infrastructure companies. They tend to suffer more than they should on the downside, but benefit more than they should on the upside.
Remember, selling picks and shovels during the Gold Rush was a great business.
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