When the chips are down … you find out who your friends are.
When the chips are really down … you find out that chip makers really don’t have the stomach to put up with rapidly disappearing margins.
And so, at least in crypto, it seems the chips are down and some friends of the space are leaving the table, having cashed in their chips — in some cases, quite literally.
We’ll stop with the gambling analogies for now.
NVIDIA has said that a boom in selling graphics chips to those who “mine” cryptocurrencies is a boom no more. The company said earlier this month that despite better than expected results in its core operations, there was a notable weak spot: “Crypto largely disappeared,” said CEO Jensen Huang on the earnings call. “We are projecting no crypto-mining demand going forward.”
How much did demand dry up? Consider the fact that the sales of chips (here the GeForce chips) had been slated to be $100 million in the quarter, but came in at $18 million. Even that trickle will be a dry river bed. As in, nothing. Quite a turnaround from the $289 million that had been seen in previous quarters. The amount is a drop in the bucket compared to the roughly $3 billion that has been seen in NVIDIA’s top line. So, perhaps not surprisingly, NVIDIA is focusing on its core markets.
But still: A few drops in the ocean still can give a sense of how the current is flowing.
Samsung, in its first-quarter results that were announced in February, stated that demand for memory chips was on the rise, with at least some of that contribution coming from the sale of crypto-focused products. That enthusiasm seemed less pronounced in its most recent earnings announcement, where no such shout outs seemed to be shouted. Qualitative data, perhaps.
But halcyon days seem to be in the rearview mirror. This past week, Coininsider.com recounted how NVIDIA had seen a surge in demand that at the end of last year — so much so that the company had set up a “supply pool” in advance to satisfy graphics cards that would in turn be snapped up by those seeking to mine on their own personal computers. The movement has fizzled — for example, HashFlare, which is a crypto mining firm, has gone bust as cryptos have plummeted, off 70 percent or more from peaks. Those are a few data points, contrasted by, say, China-based Bitmain, which has seen a strong flood of demand for its own ASIC hardware devices.
But then again, the economics are proving tough in some corners as the cryptos swoon. At around the same time that NVIDIA announced its exit, Coindesk.com reported that cloud mining service Genesis Mining is “forcing some clients to upgrade to a five-year subscription” and will end open-ended contracts for some customers who do not earn enough from their own activities to cover maintenance fees with that provider. In other words, falling crypto prices hurt. Falling mining prices hurt, too.
Said Genesis in a statement: “Unfortunately, bitcoin went into a downward trend around January. This trend, combined with the heavily rising difficulty around April and May, reduced mining outputs even further. As a result, some user contracts are now mining less than the daily maintenance fee requires to be covered, and thus they entered the 60-day grace period, after which open-ended contracts will get terminated.”
Like any industry that has sprung up overnight and become global in scale, with billions of dollars at stake, the ship may be a bit slow (and then fast) to turn.
Bloomberg noted the economics of mining are complex, and that the ecosystem is still intact, where miners are profitable, even where the smallest players are getting squeezed out as bitcoin bobbles at $6,000 to $6,500 or so.
Despite the projections that bounce all over the place about breakeven (from, say, the mid-$6,000s to mid $8,000s) “it’s clear the heyday of cryptocurrency mining is over for now,” said Bloomberg, noting the Genesis contract termination move.
Might we see more pullouts from the market, driving scarcity of hardware and chips that in turn may make mining unprofitable? All of this comes against a backdrop where China is cutting down on even the mention of crypto, where ETFs are a no-go in the U.S., and where the ripple effect may be palpable as cryptos seem yet to find any real footing.
Mining is tough work, in any setting, and no one really knows when — or if — a cave-in lurks.