It’s been an unforgiving few weeks for bitcoin and things got worse Wednesday as the chief cryptocurrency dipped below $200, territory it hasn’t seen since late 2013 when it was on course to a record run-up.
But more than a year later, bitcoin continues to fight controversial events, such as the temporary shutdown of Bitstamp, the second-largest bitcoin-dollar exchange, after it was hacked in a theft of about $5 million worth of bitcoins. The exchange is back online, but bitcoin woes persist. As of this writing, the bitcoin price hovered at about $185.
In a virtual bear market since last fall, bitcoin was above $400 in November 2014 after peaking at about $1,150 in late 2013.
Despite the mostly bearish trends of the last few months, bitcoin processing businesses continue to spring up, fueled by startup investors and speculators, and more businesses continue to accept the cryptocurrency as payment. These businesses, though, work through bitcoin facilitators, such as Coinbase, to quickly process bitcoins into U.S. dollars or other fiat currency to avoid losses.
The current bitcoin swoon, however, is deep enough to have a major impact on mining operations.
The high difficulty level for mining bitcoin, combined with the low prices, means that mining is no longer profitable, reports CoinDesk. Mining bitcoin involves solving highly complex mathematical algorithms, and that requires costly computer graphics-processing units that can send electricity bills soaring
“Mining revenue is simply too low to sustain the network at this price point and miners are faced with a tough choice – if they decide to power down, the next difficulty level will be attained later, but if they keep going, they will continue bleeding money. If the price does not recover, both scenarios are damaging to miners and bitcoin in general,” reports CoinDesk.
The conundrum that miners are facing is making widespread news this week.
CNBC reports that the selling of bitcoin Wednesday “may also be part of a vicious cycle” as “low prices force volunteers who mine new bitcoins to cut their losses.” Selling could persist if the price of bitcoin cannot cover the cost of electricity and hardware needed for mining.