The tariffs introduced by the new White House administration have already affected almost every industry and caused chaos in the markets. As a new trade deal with China is being hammered out and implemented, the effects of the tariffs will continue to drive up prices.
In this article, we’ll go over how the tariffs will affect the crypto mining industry, a field that wasn’t on anyone’s mind when the trade policy was being approved. As is the case with most other industries, crypto mining will be negatively affected by the tariffs as well.
Increased Cost of Mining Equipment
The US has introduced tariffs on electronics and specialized hardware needed for crypto mining. ASIC (Application-Specific Integrated Circuit) is mostly produced in China, and the tariffs were increased and now lowered several times, causing the price to fluctuate, but it keeps rising.
It’s expected that the cost of this equipment will rise by at least 10 to 20 percent. Small and mid-sized miners will be the first to feel this increase, and they’ll be the first to give up on mining. However, every miner will lose a portion of their profits due to the increase.
Shifting Supply Chains
Tariffs will cause manufacturing companies to shift their production to locations that are less affected. At this point, it seems the tariffs were introduced based on the trade deficit the US has with individual countries, while China, Canada, and Mexico are treated separately.
For instance, many Chinese manufacturing companies plan to move their factories to Southeast Asia. That way, they can avoid the tariffs, and the business culture is somewhat similar, making it easier to make the transition. However, it will take a while until these changes reach crypto miners, as it takes time to build the proper infrastructure and start producing at a new location.
Impact on Hosting Services
Tariffs will also affect the cost of hosting services, as they also use technology imported from foreign countries. Hosting providers also need to keep increasing the scope of their infrastructure and take on new miners. This will become more difficult with increased prices, and it will take longer.
The hosting services will transfer the additional cost to the miners, and that’s another expense that will cut into profit margins.
Reduced Profit Margins
Higher upfront costs affect the miners as they cut into their profits. It’s important to note that miners’ profits also vary based on the crypto prices. The additional cost brought on by the increase in mining equipment will be felt the most when the crypto markets are bearish. Therefore, the problems facing miners are compounding.
Crypto markets are also experiencing a downturn, mostly due to the insecurities in the mainstream economy. It has hit Bitcoin and Ethereum first, and altcoins were next. All have now somewhat recovered, once the markets got used to the new reality of trade wars.
Alternative Mining Methods
With the increased cost of crypto mining, many are looking for alternative ways to mine. One way to go is to use a crypto mining app. That way, there are no equipment expenses to cover, and all app users share the network used for mining.
These methods can be used as the only way to mine, or they can be an addition to an already set-up mining system. When choosing which app to use, miners should pay special attention to its security features. It’s also useful to know the collective processing power of the app’s infrastructure.
Acceleration of Domestic Production
One of the main goals of the new tariff policy, at least on the US end of things, was to bring back manufacturing jobs. That’s a tall order, and many experts believe that it wasn’t able to achieve that effect. Building new production facilities would take years, and in many cases, it would be too expensive.
However, when it comes to manufacturing devices needed for crypto mining, the policy might work. It’s one of those industries that may still be profitable when brought back to the US, and it may have other applications beyond crypto. Starting production in the US will take some time, however.
Slower Hardware Turnover
Crypto miners need to update their mining hardware as soon as new equipment is available. That’s the only way to remain competitive against other miners crowding the field. Now, when that equipment becomes more expensive, the turnover may become slower, and miners may end up using the equipment as long as they can.
Since these devices consume a lot of energy, with each new version becoming less damaging to the environment, a slower turnover will also mean that the overall impact of crypto mining will be somewhat worse on the carbon footprint.
Regional Booms and Busts
Since tariffs aren’t affecting all countries at once or equally, many believe that they will lead to regional booms and busts in the crypto mining market. The equipment will become less expensive in areas that are hit with smaller tariffs, and since the industry is mobile and truly global, the miners will move to follow the better market conditions.
Busts will work based on the same principles as miners leave the countries that have been affected by the tariffs. Mining is still a small enough and affluent enough industry that allows the miners to move around and avoid the damaging governmental policy.
Conclusion
Tariffs imposed on goods from China have affected many different industries already, and crypto mining has also experienced a downturn due to the new policy. It happens at the same time when cryptos themselves are losing value. The biggest reason behind the mining issues is the increased cost of equipment imported from China.
Many miners are turning to crypto mining apps, and the industry itself is moving to countries that have a more favorable tariff policy. However, setting up new factories will take time, and the future of the trade policy isn’t yet clear.