The drop in bitcoin price means mining rigs are on sale and prospective buyers may see big discounts before the summer ends.
Observing the relationship between prices for bitcoin and bitcoin mining machines offers useful insight into the mining sector’s reaction to bitcoin price volatility and timing for accumulating discounted hardware.
This article overviews current market pricing data for bitcoin mining machines, its correlative relationship to bitcoin itself, and discusses how and when miners might consider engaging with the summer hardware selloff as buyers.
The most- and least-efficient tranches of mining hardware have seen the smallest year-to-date price declines, according to market data curated by Luxor Mining. Machines with efficiencies above 38 joules per terahash (J/TH) and below 68 J/TH have seen roughly 40% declines since January. Over the same period, bitcoin has dropped roughly 60%.
Even though recent price declines for bitcoin and some mining machines have been similar on a percentage basis, the downward trends did not start or progress fully in sync with each other. The line chart below shows two peaks in bitcoin’s price during April 2021 and November 2021. Readers will notice that prices for the mining machines (data shown for the top-two efficiency tiers) didn’t peak until roughly a month later in both cases.
Even though machine prices are closely correlated to bitcoin’s price, they still lag behind it. The following section gives a brief explanation for why, but prospective buyers can often use fluctuations in bitcoin’s price as a near-term indicator of where machine prices are likely to.
Prices for bitcoin mining hardware are closely correlated to bitcoin’s price for two key reasons.
This same scenario reverses during bullish periods when miners – incentivized by climbing mining revenue – accumulate and deploy new machines. Of course, market movements in every trend (up or down) never happen this cleanly, but in general, this analysis explains the incentives that cause machine prices to follow bitcoin’s price.
It’s worth noting that slight dips in bitcoin’s price are usually insufficient pressure to part a miner from their machines. But sustained downward price action like miners have seen for the past several weeks can eventually force less-profitable miners to raise cash by selling hardware.
Retail miners (aka., the plebs) can buy directly from manufacturers, too. Sometimes website buys are restricted or unavailable for small quantities (usually during times of red-hot buyer demand in a bull market), which leaves only institutional buyers who have direct access to the manufacturer’s team able to place orders. But in the current market, manufacturers have steeply discounted dollar-denominated machine prices, and their website listings are abundant.
If bitcoin’s price starts to reverse course and rebound significantly, mining machine prices will eventually follow. Further selloffs will also drag hardware prices lower. And in that scenario, exactly how low and for how long mining machine prices will drop is impossible to predict.
More downward price movements from bitcoin, however, are sure to also trigger more machine supply on the resale market as less-efficient mining operations will be forced to liquidate some assets. In either case, bitcoin’s price will often act as an indicator for mining hardware prices, and in general, miners can plan their machine purchases accordingly.
This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.