Genesis Mining terminating unprofitable contracts

Published 11 October 2018 by GRP Rainer LLP

The price of Bitcoin has fallen sharply. This has put pressure on mining companies such as Genesis Mining, which is now seeking to terminate or upgrade contracts with its clients.

Last year, Bitcoin and other cryptocurrencies hit a high. Though many sought to profit from this boom, mining cryptocurrencies is energy intensive and requires a lot of computing power. This makes it difficult for individuals to profit from mining. Some have turned to mining companies such as Genesis Mining to rent computing power. The fall in the price of Bitcoin has exacerbated the problems associated with running profitable mining operations. For this reason, Genesis Mining notified its investors in August that it would be terminating open-ended contracts. As an alternative, we at the commercial law firm GRP Rainer Rechtsanwälte can report that the company is offering an upgrade to a contract with a five-year term.

Genesis Mining was established in Germany in 2013 and within a few years grew to become one of the leading cloud mining firms. The company moved its computing power to Iceland, among other places, due to cheaper electricity prices and it being easier to cool computers. The firm offers its clients various infrastructure packages for mining cryptocurrencies. Yet Bitcoin’s downward trend and the increasing difficulty associated with mining is making it more challenging to run profitable mining operations. It means that maintenance costs are higher than the returns on some contracts. These open-ended contracts are now being terminated by Genesis Mining within a 60-day period. Its clients are being offered to change their contracts as an alternative, with the new contracts featuring a reduced price per 1 TH/s of 180 US dollars, down from 285 US dollars. However, the contracts have a five-year term.

This five-year term could become a problem, as it is not possible to predict trends for cryptocurrencies, mining or legal regulations. This has become abundantly clear from the substantial fluctuations in the price of Bitcoin in recent months. Moreover, mining for cryptocurrencies is likely to become increasingly complex and require greater computing power. This might result not only in mining becoming less profitable but also major financial losses. Uncertain clients of Genesis Mining as well as other mining companies can turn to experienced lawyers.