Last year, 2018, was definitely a hard one for the whole crypto world, especially for miners according to GMO. Some of the biggest multi-billion dollar businesses in Asia reported some losses in the range of hundreds of millions of dollars.
The loss of $320 million for GMO
As the Japanese internet conglomerate GMO, as well as the largest mining equipment manufacturer in the industry Bitmain, struggled throughout the year, the whole sector is said to have ended the year with essential losses, following the trend of the two companies.
GMO, which is one of the most influential internet Japan companies, has recorded a loss of more than $320 mil in the last quarter of 2018. Following what was described as an unexpected loss, the firm officially pulled out of its mining business.
Despite its vast amount of capital, as well as resources, the company failed to take the size of operations of Bitmain into consideration. Earlier in 2017, Bitmain was seeking a valuation of more than $15 billion, anticipating a successful Initial Public Offering or IPO in Hong Kong.
Right now, GMO is valued at just over 169 billion yen, equivalent to almost $1.5 billion. That is 10% of the valuation of Bitmain earlier in 2019. Initially, GMO was convinced that being the significant internet conglomerate in Asia, it could outpace Bitmain and ensure a big portion of the market share of the crypto mining industry.
On the 25th of December, on Christmas Day, GMO called off its mining operation, absorbing the $320 million loss, as well as halting the development, manufacturing the sales of its mining equipment immediately.
Bitmain struggled with losses too
Bitmain was the main competition of GMO, so GMO set out to out-compete the China-based crypto mining equipment manufacturer since its inception. However, according to one report, Bitmain sold most of its S9, the flagship product, at a decline throughout the year, in a likely attempt to establish its dominant role over the division by engaging in a price battle with its opponents, which it actually knew other companies in the space will not handle.
At the third quarter of the last year, crypto miners were still making profits, and Bitmain could sell its Antminer S99 to mining facilities around the world. Because of the high interest for mining, at the time, Bitmain could handle losses at the cost of building a more inefficient environment for its opponents. However, as the months were passing by and a full-blown bear market hit in November, Bitmain started struggling.
After a poor three-month period from September to December, Bitmain laid off 50% of its workforce. On Mai Mai, which is a social media platform created by China, one Bitmain employee has confirmed that more than 50% of the total headcount of Bitmain has started to be let go. The staff member of Bitmain also added that some departments had to be entirely let go because of the conditions of the market.
In May 2018, Bitmain released one statement which has not been expected by the crypto community, disclosing the long-term plans of the company to compete against Nvidia, Intel and AMD – which are all companies that are valued over $100 billion – in the area of AI.
As it was confident in the sustainability of the crypto mining industry, Bitmain began to enter completely new industries to go against some of the biggest technology firms in the world. The co-founder of Bitmain, Jihan Wu, also said that AI chips are similar to Bitcoin mining chips in the sense that AI actually requires a lot of computations, while Bitcoin mining requires application-specific integrated circuit or ASIC chips, applicable in AI.
The problem with Bitmain and the comprehensive approach of other companies
The problem that Bitmain, as well as a lot of other companies in the crypto industry, had in the first several quarters of last year was the aggressive diversifications of services, as well as products, usually expanding outside of the cryptos, without making some necessary improvements in their core products or business models.
For example, ConsenSys, which is the largest blockchain software studio in the whole world, based in New York, laid off more than 300 employees from its workforce to focus on a select group of products it may push to the mainstream, to acquire active users.
A lot of other companies in the crypto space, which include the mining division, have expanded their businesses to different areas by walking out of the field of mining, as well as equipment production, and the overly aggressive approach failed as market conditions worsened in the third and also the fourth quarter of the last year.
From August to December, according to the crypto market data provider, as well as wallet platform Blockchain, the Bitcoin hash rate – or also the level of computing power which supports the Bitcoin network – declined from 61 exahash to 44 exahash.
However, from January of last year to December, the hash rate of Bitcoin increased for 17 exahash to 44 exahash.
Despite the abundant drop in the hash power of the dominant crypto, based on 365 days, the hash rate of Bitcoin has risen by 158%.
Such recovery in the hash power of Bitcoin in December and the relatively high computing power of the crypto likely comes from large-scale facilities which are continuing to mine the digital asset.
New trends in the New Year
Some large-scale mining facilities are actually expected to continue their operations even through losses as of their long-term strategies.
It is still uncertain which factor could actually trigger crypto assets to recover in value over the following 12 months but with significant cuts in their workforce and realignment of vision, has generated billions of dollars in profit from 2017 to the last year, companies such as Bitmain have the capital actually to sustain their own operations.
Being such, even though the majority of individual miners have exited the space, analysts expect major mining facilities to remain in the space, and also wait out the bear market of crypto assets, given that once the valuation of the crypto market recovers, miners will have the ability to start re-recording profits.