Cloud mining provider Genesis Mining announced in August 2018 that it would terminate unprofitable bitcoin contracts after miners' daily outputs fell below maintenance fee requirements during an extended cryptocurrency market downturn.
Genesis Mining announced August 16, 2018 that it was terminating thousands of bitcoin cloud mining contracts as mining economics deteriorated beyond recovery. Bitcoin's price had collapsed from $11,000 in January to $6,500 by August, while mining difficulty climbed throughout spring and summer. For customers holding contracts locked at fixed rates, daily mining output had fallen below the electricity and maintenance costs Genesis Mining incurred to operate the rigs on their behalf.
The Icelandic operator had built its business selling fractional shares of mining output to retail investors worldwide. Customers paid upfront for multiyear or perpetual contracts and received daily payouts corresponding to their share of facility output, minus operational fees. This model functioned during bull markets when bitcoin's rising price compensated for difficulty increases. But bear markets exposed a fundamental vulnerability: Genesis Mining had fixed electricity and hardware costs that could exceed customer mining output, forcing the company to operate equipment at losses.
Genesis Mining's contractual solution was a "grace period" clause allowing it to freeze unprofitable contracts. Customers whose daily output fell below maintenance fees faced 60 days to either upgrade to higher-priced tiers or accept termination. The mechanism was brutal mathematically. A customer paying $2,000 for a one-year contract during the 2017 bull run expected roughly 0.2 BTC annually. By August 2018, that same contract generated perhaps 0.07 BTC while operational costs remained constant. Upgrading to current market rates would cost substantially more than the original contract price.
The entire cloud mining industry faced identical structural problems. Competitors like Minergate and Hashflare operated similar perpetual contract models and experienced grace period situations of their own. Customers realized cloud mining contracts were effectively leveraged bets on bitcoin price appreciation, not infrastructure products generating steady passive income. Mining profitability ultimately depends on the price/difficulty ratio, a factor no operator controls. Genesis Mining could manage electricity costs and hardware efficiency through Iceland's cheap geothermal power, but could not override the fundamental mathematics of bear markets.
By late August 2018, Genesis Mining had terminated or downgraded the majority of affected contracts. The company survived the 2018 downturn, but cloud mining's reputation suffered permanently. Most customers who received grace period notices abandoned the asset class entirely, having discovered that mining contract returns fluctuated with factors entirely external to service quality or operator efficiency.
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Sources:
- [CoinDesk: Genesis Mining to End Unprofitable Crypto Contracts](https://www.coindesk.com/markets/2018/08/16/genesis-mining-to-end-unprofitable-crypto-contracts)
- [NewsbtC: Cloud-Mining Firm Genesis Mining Ends Unprofitable Bitcoin Contracts](https://www.newsbtc.com/2018/08/16/cloud-based-genesis-mining-to-drop-lower-tier-bitcoin-contracts/)
