Bitcoin Crash Ending HashFlare Contracts? (June 2018)

In early 2018, Bitcoin's price decreased significantly. This raised a concern with HashFlare mining contracts where if Bitcoin's price drops too much mining contracts may expire early.

This guide explains the logic behind this, and the Bitcoin price that could trigger it.


HashFlare daily fees are in USD

When you buy a Bitcoin mining contract with HashFlare you have to pay a daily fee in USD for every day you have the contract. Currently this fee is $0.0035 per 10 GH/s and is taken out of your mined coins each day. The important part here is that this fee is a fixed USD amount, and the mined coins per day is not. As Bitcoin's price goes down, the number of Bitcoin this USD amount represents is higher. e.g. if you have a daily fee of $10, this would be x amount of Bitcoin; if the price of Bitcoin halfed - this would be 2x.

This relationship, as well as mining rewards going down over time anyway due to Bitcoin's difficulty going up, means that at a certain point in time the Bitcoin value of this daily fee could go above the mined coins each day. This is what people are concerned about.


At what Bitcoin price would contracts expire?

To work out the Bitcoin price that could cause contracts to expire, we had to get 3 things; the amount of Bitcoin mined over a period of time, the Bitcoin fee paid over this time and Bitcoin's USD price. We used data from 5 days between December 2017 and February 2018:

19th December 2017
BTC price in USD: $19,083
BTC reward from 10 GH/s: 0.00000149377
BTC fee from 10 GH/s: 0.0000001834
Fee percentage: 12%

8th January 2018
BTC price in USD: $15,974
BTC reward from 10 GH/s: 0.0000014464
BTC fee from 10 GH/s: 0.0000002191
Fee percentage: 15%

13th January 2018
BTC price in USD: $14,164
BTC reward from 10 GH/s: 0.000001401
BTC fee from 10 GH/s: 0.0000002471
Fee percentage: 18%

17th January 2018
BTC price in USD: $11,185
BTC reward from 10 GH/s: 0.000001206
BTC fee from 10 GH/s: 0.0000003129
Fee percentage: 26%

7th February 2018
BTC price in USD: $7,650
BTC reward from 10 GH/s: 0.0000010164
BTC fee from 10 GH/s: 0.0000004575
Fee percentage: 45%


By plotting the coins mined and coin fee per day against Bitcoin's price, we can estimate the Bitcoin price where the daily fee is higher than the number of coins being mined. This can be seen more clearly in the video linked at the bottom of this guide.

Generally speaking though, when charting this data it looks like if Bitcoin's price continues to drop and reaches $2k-$5.5k in February 2018, then we may reach the point where the daily fee in Bitcoin is higher than coins mined. Keep in mind that over time this USD value will go up (or rather as Bitcoin's difficulty increases this will increase), where in June 2018 for example the USD value where contracts may expire could be over $6k.

Based on HashFlare's terms, if this happens for 21 consecutive days, HashFlare Bitcoin contracts will be 'permanently terminated'. Other factors effecting this USD price:

  • As Bitcoin difficulty increases, the USD value where contracts could expire will go up.
  • If HashFlare decrease daily maintenance fees, the price where contracts could end will go down. As a cloud mining company, some argue that HashFlare is incentivised to keep these contracts running for as long as possible (as all of their users with Bitcoin contracts will be very annoyed by this, losing them potential income in the future). A skeptical view here might be that HashFlare can also increase maintenance fees, so have the ability to end contracts whenever they want.

Conclusion

Well generally speaking, this isn't a great scenario to be in. With Bitcoin's increasing price in late 2017 many people didn't even consider that contracts could expire early. Even if we don't reach the point where contracts expire any time soon, hopefully you now understand why this is a very real possibility and why it could happen again in the future.

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