Mark, Bitpro’s CEO, and Ethan Vera, COO of Luxor, discuss the factors behind the downward trend in GPU prices in an article for The Block. The last section of this post is a TL; DR on how this affects the future of GPU mining.
Our TL;DR – Why are GPU prices dropping?
The main factors affecting GPU prices in Q2 of 2022 are:
- Supply chain for new GPUs is stabilizing. This is arguably due to less demand for GPUs by miners (see following points).
- Ethereum mining returns are down due to price softness
- Ethereum mining returns are down due to the effects of the difficulty bomb
- Ethereum mining returns are down due the effects of EIP 1559, which burned fees instead of paying them to miners. Miners are now incentivized through “tips”.
- Ethereum’s planned transition to Proof of Stake (PoS) appears to be close to implementation, causing demand for new GPU mining farm builds to slow.
- Import tariff exception is back in place for GPUs
Why were they high in the first place?
The main reasons that GPU prices skyrocketed over the past 2 years were:
- Outsized ETH mining revenue due to the popularity of DeFi applications during 2020 & 2021
- “Money printer go Brrrrr”: COVID-19 pandemic economic relief in the form of stimulus checks lined up perfectly with:
- Launch of Nvidia 30 series GPUs
- Launch of AMD Big Navi series GPUs
- Gamers trapped at home during COVID-19 quarantines with unemployment benefits
- COVID-19 supply chain disruption caused global chip shortage
So, what we’re seeing now represents somewhat of a return to normal after the pandemic, with the following caveat:
This is a completely unprecedented situation for GPU miners
Ethereum now represents 97% of the total revenue paid out to GPU crypto miners. In the past, ICOs meant that many PoW coins were providing returns for miners. Since the last crash in 2019, however, this fad has largely died out and the overwhelming majority of hash power and payouts are now consolidated in Ethereum, and their core dev team is planning to jettison proof of work mining this year and GPUs will no longer be able to mine ETH. With ETH mining out of the picture, the landscape currently looks pretty barren when it comes to profitable alternatives.
This paints a pretty bleak situation for GPU mining as it leaves a few other GPU mineable coins that, all combined, have a sliver fraction of the total payout amount ETH currently represents. What will likely happen is a period of extremely low mining profitability during which, with any luck, some very smart people are feverishly attempting to come up with a use for all this distributed compute power… to be continued.