China's mining shock may not be over yet, experts say

Earlier this year, the Chinese government took the momentous step of banning all cryptocurrency mining operations based within its border...

Earlier this year, the Chinese government took the momentous step of banning all cryptocurrency mining operations based within its borders, sparking a massive hash power drain – 168 exa hashes per second (EH / s) at nearly 86 EH / s on June 23, a drop of nearly 40% – from China to neighboring countries.

As a quick reminder, hash rate refers to the total computing power required to acquire a single Bitcoin (BTC). In other words, it can be said that while central banks issue fiat currencies, miners are given new Bitcoins to solve chunks of complex mathematical code called blocks.

Before the ban, China claimed 65% of the world’s Bitcoin hashing power. Since the aforementioned decision, however, a large number of mining pool operators have packed their bags and left for greener pastures. In one example, Canadian mining company Bitfarms noted that its revenues had increase by nearly 30% quarter-over-quarter in Q2 2021, with the company mining 26% more BTC than it did from the previous quarter.

What exactly is going on?

After a few months of turmoil, BTC hash rate levels now appear to have stabilized again, with numbers appearing to be back to where they were a few months ago. In this regard, The data made available by crypto analysis company CryptoQuant shows that the metric appears to have again overcome the 150 Exahashs mark at 152 EH / s, tripling the levels reached on June 28 (52 EH / s).

It’s also worth mentioning that on May 13, Bitcoin’s average hash rate hit an all-time high of 197.6 EH / s, only for the figure to collapse by more than 65% as mining rigs Across China were facing the “great migration.” That said, with the measure now approaching early June levels, it is estimated that new record highs could be recorded over the next two months.

Sharing his thoughts on the matter, Kevin Zhang, vice president of business development at crypto mining firm Foundry, told Cointelegraph that despite the perceived recovery, things are still far from “back to normal,” adding that the 152 EH / s reading was based on a short 24 hour hash rate estimate window, where the odds were high across the network and the blocks were resolved faster than expected, adding:

“Right now, the 24-hour moving average for hash rate is once again hovering around ~ 130EH / s, which is in line with its three- and seven-day moving averages. The hash rate of BTC is certainly recovering and returning to normal. However, the majority – if not all – of the large-scale miners in China who have been displaced by the crackdown have either shipped their mining fleets overseas or are stockpiling them until they can find capacity. open accommodation.

He further pointed out that as it stands, the whole world is still limited by readily available infrastructure that can support any mining units being moved to help maintain Bitcoin’s hash difficulty.

“It’s definitely exciting to see the hash rate online and a lot of it comes from new orders finally being delivered. By the end of the year, we could very well set new all-time highs for network difficulty and hash rate, ”Zhang concluded.

Effects of China’s ban will persist

Philip Salter, CTO of mining company Bitcoin Genesis Digital Assets, told Cointelegraph that many Chinese miners have continued to hold on, hoping for the situation in China to improve or possibly wait for an interesting opportunity. to settle abroad.

However, he added that most of the major mining sites were purchased during 2021, and there is simply no short-term capacity to deploy 5-8 gigawatts of mining equipment, which basically implies that the situation hasn’t really reached any sort of tangible resolution yet. Salter added:

“So the situation is not over yet and I think we will see the effects of the mining exodus from China for at least a year. Most of the mining hardware will probably come back sooner or later and the hash rate will come back. But, we’ll have to wait and see if this will happen slowly over time, or if panic-fueled hardware sales will cause market prices to plummet. “

Likewise, founder and CEO of mining company BitRiver Igor Rugnets told Cointelegraph that even if a rebound in BTC hash rate figures were to occur – as previously ordered machines continue to ship to their international buyers – he still believes that most of the machines that went offline in China due to the crackdown still haven’t found a home abroad.

On a technical note, Rugnets pointed out that in the few weeks since the crackdown, Bitcoin’s total hash rate lost more than 60 exahashs of computing power. And given that most of those mining machines were not last-generation machines, he believes a total of 750,000 machines would most likely have been disconnected as a result of the crackdown.

Finally, in Rugnets’ opinion, Bitcoin’s hash rate will continue to rise, as previously ordered machines will continue to be shipped from manufacturers. In addition, he pointed out that each unit of these new mining machines has about eight times the hash rate of the older generation machines that previously dominated the Chinese market. “Bitcoin’s hash rate could even set a new all-time high before the end of the year,” he said.

North American mining companies are getting stronger

According to data published by the Cambridge Electricity Index, US-based mining pools have started to sweep up much of BTC’s hash rate before even June, a time when China’s local ban hadn’t even come into full effect. In this regard, Riot, a US-based mining company, reported $ 31.5 million in mining related revenue for the three-month period – up more than 1,500% from its revenue of $ 1.9 million in the second quarter of 2020.

The company also reported a 38% increase in the total number of Bitcoin it was able to mine from the previous quarter, generating 675 BTC from 491 BTC in the first quarter. In fact, Riot recently launched a $ 650 million 400 megawatt expansion with Whinstone US, with a total of four additional power generation facilities currently under construction.

Other North American mining companies that have posted staggering gains since the start of the year include Marathon (268%), Bitfarms (210%), Riot (126%) and Hut8 (180%). Additionally, data suggests that the aforementioned companies were able to generate an average of 58% more Bitcoin in the month of July than in June.

Commenting on his company’s recent performance, Fred Thiel, CEO of Marathon Digital Holdings revealed that in the second quarter of the year, the company’s revenue increased 220% (to nearly $ 30 million) from the previous quarter. Additionally, the company’s hash rate also increased by 196% during the aforementioned window of time.

So, it will be interesting to see how Bitcoin’s hash rate recovery plays out from now on, especially with an increasing number of companies around the world increasing their production capacities.