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The inevitability of failing crypto companies

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@anomadsoul
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4 min read

Luna, FTX, BlockFi... and now Genesis.

Man, so many crashes as of late, and all of the events unfolded by these crashes are not something I want to talk about here. The domino effect happening right now is understandable, but what if I told you that crypto companies are poised to fail even if events like those above happened?

Mining Bitcoin

It's no news that mining bitcoin is getting harder and harder because it is almost no longer profitable due to the current bear market. A lot of miners will capitulate, or at least that's what the news outlets are saying, which makes me believe we will continue to see them mining even at a 0% profit for a couple of months. You ask me for sources? Dude just trust me.

I mean, at least BTC pumped almost 40% over the past couple of weeks, but this doesn't change anything.

It's getting harder to mine Bitcoin

Mining Bitcoin is a business, and some people and companies are not there for the long term holding, they run a node because they plan on selling a big chunk of the mining rewards to pay for expenses both personal and business related. But then the question of How much Bitcoin is available for miners to sell?

It's pretty easy to understand this concept so let me break it down for you with made up numbers. If it costs $1k USD to run a Bitcoin mining node, and the owner gets lets than $1k USD worth of BTC rewards, then the business is not profitable. As the deflationary nature of Bitcoin makes the minting amount go down with every halving, the price of Bitcoin needs to go up as a result of this deflation, otherwise the miners will not obtain any profits from running a node.

Assets are in a losing streak in terms of price, and infrastructure takes too much time to get developed so there's a lag between that gold market and golden period of profitability where this matter really gets squeezed.

But eve if mining bitcoin is not profitable, these miners will not turn off forever, they just have to find other options to save in expenses. Some miners will find cheaper energy so they can continue to hash, and those are the ones who will reap the benefits.

The bears role here

My take here is that if mining bitcoin is not profitable at the moment, all what miners need to do is prepare an expense runway during the bulls so they can endure the bears, hold while the price is down and just sell when the market awakens. Maybe I am oversimplifying this, but isn't this simple planning and 101 economics?

I mean I understand that some - or more than just some - are not finance guys and just got lucky while browsing 4chan back in 2009 and have no real life experience or how to run a profitable business.

That's just crypto. Crypto gave an infinite amount of money to people who didn't earn it but just got lucky, and we have a lot of those running the crypto space, but that's a topic for another post.

The point is, if miners are having issues continuing hashing because BTC is not profitable, then what the hell did they do with their huge profits from previous years?

That's why crypto companies are doomed. A lot of them are funded, backed and founded by people who do not belong in the CEO world. Sorry, not sorry to say that as crude and raw as it sounds.

The bulls will come, but if they can't find a way to endure the bears and keep the network alive, then BTC is doomed. It's not, don't worry, I'm exaggerating this scenario.

The strong will survive and the weak will probably get wiped

The US dollar is facing challenges from other currencies, particularly as the Federal Reserve has been implementing measures to address inflation and address the current economic recession. One of the main concerns is the potential for a crash in the bond market, as trillions of dollars of corporate debt have been accumulated. This has led to a deflationary period where many investors are scrambling for a safe haven, and the Fed is struggling to respond effectively. Additionally, there is a growing concern about the impact of crypto currencies, particularly Bitcoin, on the global economy, as the value of these currencies can fluctuate wildly and they are not regulated by traditional financial institutions. The future of the dollar is uncertain, and it will depend on how the Fed and other international banks respond to these challenges.

Bitcoin depegging

In the short term, there is a growing correlation between the stock market and the cryptocurrency market, particularly Bitcoin. As Bitcoin becomes more mainstream and widely accepted, it is likely that we will see more institutional investors and hedge funds entering the market, which will drive up prices. However, as the cryptocurrency market matures and becomes more stable, it is likely that we will see Bitcoin become more independent from the stock market. This could mean that the price of Bitcoin will not be as closely tied to the performance of the stock market, and instead will be determined by factors such as adoption rate, technological advancements and regulatory changes. It is also possible that other cryptocurrencies will start to gain more attention, and that the market will become more diversified. The future for Bitcoin is uncertain, but it is likely that it will continue to grow in importance as a decentralized alternative to traditional financial systems.

Posted Using LeoFinance Beta