Reexamining the Economics of Bitcoin Mining in Light of Shortages

Semiconductor shortages are plaguing the computer industry and automakers alike, with some drawing comparisons to the chip famines of decades ago. Unlike these, however, this shortage has seemed prolonged and affected all kinds of integrated circuitry as opposed to simply RAM chips or certain types of microprocessors. As one might expect, this is also having a huge impact on upstart cryptocurrency miners.

The cost of mining a single Bitcoin token has increased exponentially, with the average production cost somewhere around USD$9,000 in terms of ASIC model usage. While that doesn’t look too bad considering that the cost of a token can theoretically exceed R600,000 on an exchange, it does make it harder for individuals to get into the market. As semiconductor prices continue to soar, it’s going to become increasingly difficult for those in smaller central and southern African markets to begin mining operations even if local authorities declare some form of cryptocurrency to actually be legal tender.

That’s leading some to look for alternative ways to profit in the industry.

Searching for Other Business Models

Those keeping a sharp eye on Latin American economies have probably noted that El Salvador’s Bitcoin experiment has been sort of a mixed bag for the country. While cryptocurrency tokens can be used as a medium of exchange the same way any other sort of money could, the current chip shortage has made it difficult for locals to purchase GPUs needed to produce new tokens. Additional foreign export restrictions are making it nearly impossible for these users to purchase new equipment from exterior markets.

As a result, some have returned to their other business ventures and simply leveraged their connections to cryptocurrency mining in order to allow them to accept Bitcoin or Monero tokens as payment for services rendered. There’s no reason why someone who is impacted by the current cost crunch couldn’t still run an online store or even a physical brick-and-mortar facility where they accept some fraction of a token in exchange for something they wanted to sell. Those who can’t earn enough to support themselves this way may start to explore the possibility of either running an alternative exchange or trading cryptocurrencies for actual cash.

This is assuming, of course, that their own local authorities continue to support some form of actual hard currency for the time being. Trading Bitcoin in this way should theoretically still remain possible for some time regardless of any price increases in electrical hardware. Higher prices for commodity PC parts could actually translate into increased costs per token, which might make a buy and hold strategy quite profitable.

Unfortunately, it can be extremely difficult to pick a good entry point when prices fluctuate on a fairly regular basis.

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Managing Costs in the Face of Price Hikes

Back in April, lead times for Broadcom chips skyrocketed from a little over 12 weeks to more than 22 weeks. That alone should be enough to illustrate that the economics of Bitcoin mining is not in the favor of individuals or even small groups. Those who switch to trading in the face of this kind of situation will want to very carefully judge their entry points.

Some market analysts have suggested that anything over USD$12,000 per individual token is too high as far as investment vehicle purchases go. Considering that it’s unlikely to dip back down to this level, trading economics may not make much sense for most people at all. They may wish instead to invest in the various alt-coins, which aren’t as pumped up at the moment.

A few of these, like the so-called stablecoins, are actually backed by some form of real-world currency, which means that they can’t experience the kind of dramatic losses that some people have incurred in the past as a result of Bitcoin’s variability. On the other hand, this also means that people are unlikely to make windfall profits with them. Others are backed by things like collectibles, which might sound silly but these do have a tendency to appreciate in value.

Those who currently haven’t invested in any of these products may need to start thinking even more liberally about how they’re going to use their money.

Escaping the Bonds of High Prices

Affordable mobile devices are driving the push for newer low-cost investment vehicles. As new consumers suddenly have the ability to examine trends and watch their money work for them, the demand for such things is likely to increase. This makes it likely that new types of cryptocurrency that use dramatically lower proof-of-work algorithms will start to come on the market.

While it might take a while for these to be accepted and some of them might go the way of many other failed alt-coins, those that succeed may be able to weather the current storm the best.

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