What Causes the Fluctuations in the Value of ASIC Miners?
Table of Contents
Table of Contents
ASIC miners are bought and sold in a marketplace just like any other asset. The price of an ASIC miner responds almost instantaneously to the same supply and demand relationship of all assets of value and utility. There are however a few additional unique influences that affect the market price of an ASIC at any given time.
An ASIC miners value changes over time as a result of the following factors:
The reward for proof of work (POW) mining, a cryptographic proof in which one party proves to the other that a certain amount of a specific computational effort has been expended, is a “block reward”. For Bitcoin miners, the revenue generated by their operation is simply the number of Bitcoin rewarded multiplied by the current Bitcoin price.
Bitcoin’s protocol includes a unique network difficulty adjustment that ensures that a block is rewarded roughly every 10 minutes. As a result, as mining becomes more profitable, market forces will attract more hash power into the system and the Bitcoin protocol will systematically adjust the difficulty level in earning a block reward higher. Thus, making an ASIC miner's performance a strong influence on the current market price of the machine.
Network difficulty exerts downward pressure on the value of ASIC miners. The market participant evaluating the value of a miner at any given time will need to make an assessment of the current and future growth in network difficulty in order to make a reasonable assumption on the value of the machine today.
Let’s walk through a simple thought experiment of a potential buyer of an ASIC at any given time. Here are some questions that might be running through their head:
All of these factors play an important role in determining whether it is the right time to invest in an ASIC. There is an interesting twist to this thought experiment that might not seem so obvious at first.
If you had purchased or are in the custody of older models which are now in demand, they could ultimately fetch a premium in the market. If timed correctly, an older model which has serviced your needs for some time already could be sold at, near, or even more than what you bought it for. In short, the return on investment would be amplified considerably.
If the results of your thought experiment lead you towards investing in an ASIC miner, there are many companies online that offer aftermarket options. Compass Mining, for example, is a large and well-known organization that offers a low-maintenance, all-encompassing suite of services in addition to an open marketplace for new and used ASIC miners. However, buying new ASICs from the secondary market or used units, carry their own risks, namely that it is difficult to ensure that what is shipped is what was ordered.
Another important factor to consider is the risk mishandling during shipment, maintenance parts, service support, and manufacturer warranty of your ASIC when you purchase on the secondary market.
If you’re interested in buying a new ASIC miner, please note that buying directly from a manufacturer may be difficult, as machines are in very high demand and are usually sold to large institutional buyers first. At the moment, there are only a handful of ASIC manufacturers and lead times and shipping delays for delivery continue to increase even for their best customers.
It is more likely than not you'll end up finding units on the secondary market but those ASICs price is subject to price changes as the market conditions change over time.
After working through this thought experiment, if your profitability assessment is not in line with your expectations, there are alternatives to investing in ASIC mining machines.
Bitcoin mining has matured as an industry and now offers investors simple and convenient ways to be able to buy shares in companies that mine Bitcoin. If you choose to purchase shares in a Cryptocurrency mining company, there are publicly listed companies such as Argo Blockchain, Riot Blockchain, and Marathon Digital Holdings.
Buying shares in a cryptocurrency mining company offers you the benefit of exposure to the crypto mining industry without bearing the direct costs of running your own mining operation, monitoring the prices of ASIC miners, or being subject to this nascent industry’s macroeconomic and sociopolitical developments.