Bitcoin Crash Ending HashFlare Contracts?
In early 2018, Bitcoin's price has decreased significantly. This has raised a concern with HashFlare where if Bitcoin's price continues dropping, mining contracts may expire early. This guide goes 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, tied to mining rewards going down gradually 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 very well 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%
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 we've posted alongside this guide (which will be linked at the bottom).
Generally speaking though, when charting this data it looks like if Bitcoin's price continues to drop and reaches $2k-$5.5k, then we may reach the point where the daily fee in Bitcoin is higher than coins mined. Based on HashFlare's terms, if this happens for 21 consecutive days, HashFlare Bitcoin contracts will be 'permanently terminated'.
Something important to keep in mind here is that the price range where contracts could expire will vary based on several factors:
- If Bitcoin's difficulty goes up, the price where contracts could end 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; historically they've decreased them though.
So if you're reading this several weeks/months after us writing it, this could skeptically happen at a higher Bitcoin price if Bitcoin's difficulty has gone up a lot, or more optimistically at a lower Bitcoin price if HashFlare have lowered their daily maintenance fee.
Well generally speaking, this isn't a great scenario to be in. Until recently few people considered this scenario, most assumed that HashFlare Bitcoin contracts would be guaranteed to last the full 1 year. Even if we don't reach the point where contracts expire, hopefully you now understand why this is a very real possibility - and why it could happen again in the future.
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Written by the Anything Crypto team
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