The Covid-19 crisis and the resulting volatility of the cryptocurrency market prompted many digital asset farms and independent miners to stop operations.
Contrary to expectations that Bitcoin, being the leading digital asset, will surge once stock market investors shift to cryptocurrency investment during the crisis, the opposite happened. Along with the stock market rush that saw many investors unloading their shares, the bitcoin market reacted similarly. The cryptocurrency market also crashed, resulting to daily losses of about 50% that eventually drove the Bitcoin price below the $4,000 threshold, down to as low as $3,600.
Although the crypto-community saw the prices of cryptocurrencies rising, after the government legislated CARES Act was passed by Senate. The increases though were not enough to warrant that the price of bitcoin will not go down below threshold again.
That being the trend, many bitcoin miners and mining farms went ahead with decisions to halt operations, wary that the worsening health crisis will yet again spur sell offs that only spell losses to digital currency miners.
Why Volatility in Prices Affects Crypto Mining Operations
First off, it should be understood that the profitability of crypto mining operations is not the same as what investors could gain when trading their digital currencies.
Cryptomining after all is cost intensive, particularly with bitcoin; being the most transacted of all digital assets. Where some bitcoin investors may realize gains by leveraging their cryptocurrencies during price volatility, the same cannot be held true for coin miners.
If at the end of the day the price of a bitcoin is much lower than the costs incurred in analyzing and solving encryptions bitcoin transactions for the day, bitcoin miners incur losses. Mainly because the bitcoin compensations they will receive will not be enough to cover the corresponding costs of mining.
Underscoring the Significance of Digital Assets in Times of Economic Crisis
One trait that can distinguish digital assets from physical assets is that the uncertainty of cryotocurrency prices creates an advantage in times of real-cash insolvency. There have been bankruptcy proceedings in which the bankruptcy court was unable to pin down digital money as potential payment in satisfying the legal demands of creditors.
The extreme volatility in the price of bitcoins as demonstrated by the recent bitcoin trading activities, makes digital currency an unlikely asset to demand as settlement for a credit obligation.
Let us say a bankruptcy court includes bitcoins without objection by creditors, because at the time of awarding, the digital currency had a value of $6,600.
However, if in the next few days the price of bitcoin drops to $2,300, the creditor can trade or exchange the digital money for real cash at the lowered price, or wait until the price rises. The creditors can no longer demand for more bitcoins, since they took a risk when they agreed to accept digital currency as settlement of the bankrupt person’s obligations.
When looking for a bankruptcy lawyer san diego businesses recommend those who will be able to make the court understand why cryptocurrencies will not work as a reliable, equitable settlement of credit obligations.