Large Acquisition Price Tag Might Quell Concerns About Mining Volatility

Bitcoin  •  Blockchain

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There will only ever be 21 million bitcoins, and the rate at which those 21 million bitcoins are generated will decrease periodically by half until all bitcoins are in circulation.  More specifically, a user is rewarded with a given number of bitcoins when it discovers (i.e., “mines”) a new block to add to the block chain ledger of bitcoin transactions.  That reward decreases by half upon a “halving” event.  The next “halving” event – where the number of bitcoins created each time a user mines a new block will decrease from 25 to 12.5 – is expected to occur in July 2016.

Some are concerned that the halving event will disincentivize miners from continuing their operations, or make mining so unprofitable that miners will go out of business.  The concern is that with the mining reward dropping by half, miners will see a drastic decrease in their revenues unless the price of bitcoins immediately doubles.  In short, the mining industry is a volatile one.  Indeed, within the past month, for Swedish mining firm KnCMiner declared bankruptcy, and Israeli mining equipment developer Spondoolies-Tech announced that it was shutting down its operations.

But not all hope is lost in the mining industry.  In the past few days, China-based mining firm Canaan Creative announced its agreement to sell its operations to Shandong Luyitong, a Chinese publicly listed electronics firm, in a cash and stock transaction that values Canaan Creative at approximately $466 million.  The acquisition – believed to be the largest acquisition in mining history –might just give mining companies the incentive they need to continue their operations despite the impending halving event.

 

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