As crypto prices plummeted over the course of 2018 the level of difficulty in minting new digital coins remained high even as profitability dropped. Photo: iStock
Bitcoin mining has been labeled as an 'undesirable industry' by China's National Development and Reform Commission, which plans to abolish mining farms. Photo: iStock

The year-long bear market of 2018 has affected more than just cryptocurrency prices. Related industries such as large-scale mining have also suffered as some of the largest firms in the world start to pull the plug on what were once highly lucrative operations.

Chinese crypto mining giant Bitmain was once a titan of the mining world, controlling almost 80% of the hardware used to generate new digital currencies. Today the company has lost its shine as reports indicate it is preparing to lay off between 50 and 80 percent of its staff.

Bitmain is the world’s largest supplier of mining equipment known as ASIC (application-specific integrated circuit) miners. It also controls some of the largest mining pools on the planet and through that a significant influence over the Bitcoin and Bitcoin Cash networks.

As prices plummeted over the course of 2018 the level of difficulty in minting new digital coins remained high, leading to falling profitability. This has resulted in an exodus from large-scale mining operations which are no longer viable as the cost of hardware and power is greater than the value of the coins mined.

There have been additional rumours that the CEO of Bitmain, Jihan Wu, is about to resign. The planned multi-billion dollar IPO on the Hong Kong stock exchange has also been shelved by the company as it struggles to turn any profit in a falling market. Bitmain currently stockpiles a lot of Bitcoin Cash and Litecoin and there are now industry fears are that it may liquidate these to cover expenses which would sharply affect prices of the cryptocurrencies.

In Japan a similar situation is unfolding. Internet giant GMO has also reportedly pulled out of the crypto mining hardware business according to Toyo Keizai. The move will cost the company an estimated 25 billion yen (approximately $28 million) according to the report, which also claims that the company is now looking towards northern Europe to continue its own mining operations where power costs are lower.

Japanese e-commerce giant DMM has followed suit with the closure of its mining farm in Kanazawa. Citing “deteriorating profitability” as the main reason, the firm added that “the withdrawal process such as the sale of the machines will go over to the first half of 2019.”

Neither Japanese company seems to want to effect a complete retreat from the crypto business, with both now turning their focus on virtual currency exchanges. DMM already operates one of Japan’s 16 licensed crypto exchanges and will be channeling efforts into that.

Bitcoin blockchain, by design, becomes harder to mine as time goes on and as currently the rewards for finding new blocks are decreasing, only another massive bull run in prices will see a return by big players to the mining industry. Investors remain hopeful that this will come later this year.

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