When mining is no longer profitable

[RCMco]

With the price of BTC, LTC and others dropping daily, you cant help but wonder what is going to happen once the price drops so low that mining isn't profitable even with current ASIC miners. Without enough miner support what is going to happen to the blockchain? Are transactions going to take a lot longer to happen or even happen at all? What is the price point where even the larger farms can no longer support the price?

[bmyatt99]

I think that margin/loss area has allready been hit, if you look at hashcharts for btc and ltc network hash has been droping like crazy. Heres charts for btc and ltc
https://bitcoinwisdom.com/bitcoin/difficulty

[CSZiggy]

For BTC to be profitable for most electric costs, I read the break even point was like $4500 or $5400 , so we are well under that already. A lot of places mine for a negative. They can deduct power costs and not owe anything and wait it out for the prices to rebound even if it takes another 18 months to come back up. Due to the cost I'm paying for my power, the 33% I have to pay to the IRS on all that I mine, and not able to sell the coins later in the year for more than I am charged to mine them, I had to shut down 2 weeks ago.

In the meantime, little miners will shut down, and in a day or 3 the difficulty will re-adjust. The network should be fine if there are 10 miners or 1000 miners, once the difficulty adjusts to make the math less complex so the blocks will still get solved at the same rates they are targeted at.

The system is self correcting, but once it gets so low, a lot will switch their miners back on to take advantage and will make good profits, until the next time it re-calculates the difficulty for that coins network/hashrate.

[RCMco]

I agree with your in theory but using that logic I figured more miners would have been attracted as the difficulty has dropped over the past few months reducing the overall slide. I know it was a little over valued because of all the people who bought in thinking they would make some quick money but I would think those people have been washed out by now.

[CSZiggy]

If you are running 800watts on a L3+ for example, 800 x 24 x 30 = 576,000 = 576KwH per month.

If you are paying $0.10 total for the power delivered to your home (distrubtion tax, supply, energy delivery) you are paying $57.60 to mine for a month, which should earn you about 1.5 LTC coins in the month. At $30.00 for a LTC, thats $45 a month earned from mining. At some point it is no longer cost effective to pay $57 to only get back $45. Then if you live in the USA, there is that 18% income tax + the 15% self employment tax owed on the income generated. Depending on the taxes and how you setup the business you can take deductions to offset that from electricity, rent, internet, miner depreciations, computer equipment and other costs related to making the coins. If you are just doing it as a hobby and not a full time source of income you may not be able to deduct any of it, depending on which state or country you are in. Check your local listings, consult your tax advisor.

THEN when you sell them for a profit(hopefully) there is a capital gains tax that needs to be paid.

You just have to add it all up and know what your break even price is and if its under that, then it may not be worth it for you to continue to mine. People who own their own buildings and have cheaper electric prices can afford to mine longer and still make a profit with their reduced costs. Unless the price of the coins goes up, the difficulty goes down enough to make more of them at the lower price, or you are hedging your bets that eventually the prices will return so you can sell for a profit, then it may be time for lots to turn off their machines and save money.

[Steve Sokolowski]

If you are running 800watts on a L3+ for example, 800 x 24 x 30 = 576,000 = 576KwH per month.

If you are paying $0.10 total for the power delivered to your home (distrubtion tax, supply, energy delivery) you are paying $57.60 to mine for a month, which should earn you about 1.5 LTC coins in the month. At $30.00 for a LTC, thats $45 a month earned from mining. At some point it is no longer cost effective to pay $57 to only get back $45. Then if you live in the USA, there is that 18% income tax + the 15% self employment tax owed on the income generated. Depending on the taxes and how you setup the business you can take deductions to offset that from electricity, rent, internet, miner depreciations, computer equipment and other costs related to making the coins. If you are just doing it as a hobby and not a full time source of income you may not be able to deduct any of it, depending on which state or country you are in. Check your local listings, consult your tax advisor.

THEN when you sell them for a profit(hopefully) there is a capital gains tax that needs to be paid.

You just have to add it all up and know what your break even price is and if its under that, then it may not be worth it for you to continue to mine. People who own their own buildings and have cheaper electric prices can afford to mine longer and still make a profit with their reduced costs. Unless the price of the coins goes up, the difficulty goes down enough to make more of them at the lower price, or you are hedging your bets that eventually the prices will return so you can sell for a profit, then it may be time for lots to turn off their machines and save money.

I don't think that taxes are a usually a consideration in this calculation. I know that you are very concerned with taxes, but traditionally taxes are only issued on profits. People who don't earn enough money to pay electricity bills usually don't have to worry about paying taxes.

I suggest that you contact an accountant or an attorney to investigate this, as I think you may be misleading some customers on the forums about these issues.

[RCMco]

I understand what you are saying but I would have thought that the "self correcting" system would have created a type of safety net again the amount of freefall that seems to be happening to most if not all coins. I am familiar with expense deductions as I do this with my primary business (law firm) but I don't feel that we should even need to consider these matters and that these dips should only be temporary setbacks not year long drops.

[Steve Sokolowski]

I understand what you are saying but I would have thought that the "self correcting" system would have created a type of safety net again the amount of freefall that seems to be happening to most if not all coins. I am familiar with expense deductions as I do this with my primary business (law firm) but I don't feel that we should even need to consider these matters and that these dips should only be temporary setbacks not year long drops.

I'm going to write a post about this crash sometime later today.

What surprises me is not that there are bubbles, but how quickly the crash is occurring and how ETH and LTC are being absolutely destroyed compared to bitcoin. It's really shocking to me that, with no news whatsoever, people's opinions about coins changed so dramatically in a week.

[CSZiggy]

Tax codes change from year to year, and US IRS and crypto has always been somewhat murky.

If you can deduct costs from mining i'm told depends whether or not it meets the criteria of BUSINESS vs HOBBY. The 15% self-employment applied depends if its a business or hobby. How much of your total income is from your primary job vs mining income determines if you are classified as a hobby or business. Taking an itemized deduction for mining costs would be instead of the standard deductions so the costs would have to outweigh what the normal standard deduction would be. The 15% is on the GROSS not the NET so before deductions.

And maybe most people mining here are HOBBYISTS, or cant afford to take the electricity deduction instead of their standard deductions, but I did mine crypto the past 3 years as a business, so the costs, the deductions and the taxes applied may just be more substantial for me and others who are classified as businesses.

Again yes, it is a very complex issue and its recommended to consult a tax expert to make sure you are compliant. But thinking just because you paid more in electricity means you dont have to claim or pay taxes on what you mined could be a very costly mistake.

[cc4506]

I have a lot of respect for what Ziggy says. That stated, my tax guy does not agree with his interpretation however I guess I will soon find out as I did start a business so I could deduct expenses...and now...cough, cough...loses.
Like others I have shut down my miners except for an L3 that keeps the garage warm here in Montana. LTC, Zcash, XRP, all the ones I was working on have become borderline shit coins.
I still contend that until and when I can take out my LTC credit card and purchase something at REI or Costco crypto will always be on the outside looking in. While the future is an unknown I do hope it goes back up, but the more I read the more I believe the past surge was manipulated. So I don't see that happening again since the regulators are investigating them.