Crypto mining industry has been severely hit by the recent meltdown in the crypto markets which has taken nearly all major coins to their 52-week lows. Not just the miners, even the equipment suppliers to these miners are wacked left, right and centre. While everyone is wishing this debacle to end sooner, RBC Capital markets don’t see this happening sooner.
Crypto Pain of AMD and Nvidia to stay longer than expected
Recently, RBC Capital Markets released a note titled” “Crypto mining issues likely to persist longer than expected ” which spoke about the pain crypto-mining chipmakers such as AMD and Nvidia are feeling due to the recent collapse in crypto markets. According to the report, the unparallel drop in crypto prices has made the outlook for the cryptocurrency industry bearish and it would take a little longer than expected to revive.
The report quoted Mitch Steves, an RBC analyst, saying that,
“A high-quality crypto mining GPU was still profitable as of last quarter and at this point in time no GPU is profitable,”
“While Nvidia and AMD have suggested that the cryptocurrency overhang will be a one-quarter issue, we think it is more likely a two-quarter issue given new market dynamics.
The report by RBC also noted that two factors have added to risks for the excess of mining GPUs for cryptocurrencies. First, since most GPUs are on a two-year warranty, there is likely demand for used GPUs which could cause additional near-term inventory issues. Additionally, more private companies are entering the competition to create higher-quality chips. For example, Bitmain’s new Ethereum specific mining chip is far superior to any GPU and is likely the only product running “in the green” at this time.
Up until last quarter, Bitcoin was pretty much stable in the range of USD 6400-6600 making it viable for crypto miners to mine. But as the market collapsed and Bitcoin, the largest crypto by market value, tanked from USD 6400 odd levels to intraday low of $3,592 on November 26, 2018. This made the situation for bitcoin miners terrible and has led to thousands of mining rigs to shut down.
AMD and Nvidia, during their earnings release for this quarter, had hinted the slow down in mining equipment anyways, but the fall that happened after the calls have made things miserable.
Nvidia CEO Jensen Huang was quoted during company’s third-quarter earnings release earlier this month that
“”Our near-term results reflect excess channel inventory post the crypto-currency boom, which will be corrected”
The same was echoed in August when the management had warned that it was expecting “essentially no cryptocurrency” business moving forward. This same sentiment was mirrored in AMD’s warning in July which said it expects the impact from crypto to fall to nearly zero in the third quarter.
If RBC analysis stands correct, we are in for some bearish time in the crypto industry and it will keep the prices suppressed for quite some time.
Do you agree with RBC’s analysis of pain lasting longer for AMD and Nvidia? Let us know your views on the same
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Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.