The current bear market has taken a toll on everyone — miners included. However, mining operations don’t have to operate at a loss. Now, they can use their mined coins as collateral for loans in order to not only persevere but thrive in current market conditions.
Miners Can Hodl, Too
Running a large-scale mining operation isn’t easy. Every company has fixed costs which must be paid, despite cryptocurrency market conditions. These costs include electricity bills, rent, and other overhead costs — all of which must be covered in order to stay afloat and keep the miners running.
Cryptocurrency mining is definitely a dog-eat-dog world in which only the strong survive and the weak traditionally have to pull the plug. Savvy companies can gain advantages from the utilization of renewable energy sources, algorithmic optimizations, advanced and energy-efficient cooling systems, government subsidies, etc.
Nevertheless, miners still must cover their overhead costs, regardless of how advanced their operations are. Sadly, plenty of miners have been pulling the plug as 2018’s prolonged bear market has proved difficult to profit in.
All hope is not lost, however. There is still an attractive option to help cryptocurrency miners thrive.
Crypto-Collateralized Loans Are Key
Dealing with operational losses is a tale as old as time. For centuries, farmers have had to put their land up as collateral in order to stay operational, with the expectation that the land will produce food. This expectation allows for the taking out of a loan to buy seeds, equipment, supplies, etc. Once the crops are harvested, the loan may be paid back and the farmer keeps his remaining profits.
Cryptocurrency miners now have the option to operate under similar conditions — which are crucial in bear markets. Explains Csaba Csabai, CEO of INLOCK, a crypto-backed lending platform:
“I remember when I started mining Bitcoin back in 2013, it was profitable all the time, selling or not selling was really a matter of higher potential gains in the future, but never about taking a loss. When you ‘produce’ something the market isn’t willing to pay you enough to even cover your expenses, then you have a business that’s hardly sustainable.”
If a mining farm is “hardly sustainable” in the current bear market, the operator now has the option to use their mined cryptocurrencies (that would have likely been sold immediately anyway) as collateral to get cash and cover their outstanding expenses.
This offers three crucial benefits to the miner who:
- Avoids taking out a bank loan, which requires credit score checks and time;
- Avoids selling cryptocurrencies, a taxable event in many countries (unlike lending) with additional headaches like accounting and taxation issues;
- Gets his cryptocurrency back as soon as the loan is repaid. Furthermore, if the spot price goes up during this period then it’s a double-win.
It’s important to realize, however, that if the market spot price is dropping — as it has through 2018 — an online lending platform like INLOCK could have proven to have been invaluable to participating miners. Said miners could have covered their expenses and gotten back their cryptocurrencies that had appreciated in value since the loan. In the worst case scenario, the collateral would be liquidated if the spot price falls below the agreed-upon threshold in the smart contract.
The most important fact to remember, however, is that the mining operations would have likely sold these coins anyways! Explains INLOCK CSO Benedict Banathy:
“INLOCK allows miners to essentially mine crypto at current difficulty while ‘selling it’ at future prices. When they lock it in as collateral for a fiat loan, they instantly gain access to the purchasing power of their crypto while keeping it for future profit. This is really the best option miners have in a bear market like the one we’re in now.”