Bitfury estimates number of Chinese ASIC miners that will not return to the network

Following the effective ban on cryptocurrency mining in China, miners shut down equipment with a combined hashrate of 90 EH/s and power consumption of 5.2 GW — the output of several large thermal power plants. How the Chinese authorities’ decision affected the global mining market and how many devices will not return to the network, ForkLog spoke with Vadim Krutov, chief executive of Bitfury Group.

Due to the sharp drop in the network’s hashrate, miners outside China saw their revenues double and mining profitability rise. In the expert’s view, this situation will persist at least until the first quarter of 2022, while relocation and ramping up of equipment are completed.

According to Bitfury’s analytics unit, a portion of devices with a total hashrate of about 22 EH/s and power consumption of 2.6 GW are considerably outdated, and transporting them is unprofitable.

“There is unlikely to be any noticeable demand on the secondary domestic market for such equipment, as the domestic market has virtually ceased to exist. Probably this equipment will never return to the network,” predicts Vadim Krutov.

This also means that the efficiency of the average ASIC miner in the network will improve.

Newer-generation equipment with a combined hashrate of 68 EH/s and power consumption of 2.6 GW will be moved to sites outside China or sold abroad. This is already happening and is exerting a strong influence on the global market’s supply-demand balance.

“Probably for the first time in the market, with high profitability of mining, there is an opportunity to buy efficient equipment with short lead times,” noted the CEO of Bitfury Group.

Vadim Krutov said that Chinese clients who planned to host the equipment domestically after delivery began canceling prepaid orders. This factor further pressed prices, shifting the supply-demand balance.

To prevent a sharp fall in ASIC miner prices, the market’s largest player, Bitmain, announced a suspension of sales.

“There is a very serious competition for sites outside China. Primarily for fully prepared sites where you can bring in equipment and immediately continue operating. But there are very few such sites, and their electricity prices are usually not the most favorable,” Bitfury said.

Frenzied demand is pushing miners to accept hosting prices higher than before.

“Next in line are sites that can be outfitted relatively quickly—within 4-5 months. The capacities of such sites are significantly larger, and they are likely to be the solution for most relocating miners,” noted Vadim Krutov.

Bitfury expects the mass rollout of such sites in autumn–winter, at which time the largest portion of the offline equipment will return to the network.

“Because miners have to accept any sites, the electricity price for the average miner in the network will rise,” added Krutov.

He said that miners’ attention is mainly focused on the United States and Kazakhstan, primarily due to friendly regulation and abundant electricity.

The relocation outcomes

The relocation of 2.5 GW of equipment is a lengthy and capital-intensive process, Bitfury estimates, to be completed in the first quarter of 2022. The efficiency of mid-market mining equipment will rise, and with it the average price of electricity.

These factors will offset one another, and Bitfury predicts that the average cost of mining cryptocurrencies will remain unchanged. At the same time, Bitcoin miners will no longer experience the ‘rainy season’ effect, when older hardware temporarily re-entered the network due to summer electricity-price dips in China, boosting total hashrate and reducing profitability.

Krutov predicts that, as a result of the relocation, the United States will become the global leader in mining capacity, and Kazakhstan could break into the top three. Mining volumes in Russia are also set to rise. It is quite likely that new manufacturers of mining chips and servers will emerge in the United States.

According to Krutov, overall the situation will lead to a larger share of mining capacity located in countries where mining has already left the “gray zone” and is a lawful activity, an increase in the number of institutional players, including publicly traded mining companies.

“All this will make the mining sector more transparent and provide an additional impetus for its development,” concluded the Bitfury Group’s top executive.

In May, Chinese authorities said they planned to take measures regarding cryptocurrency mining and the trading of bitcoin.

Subsequently, the official Xinhua News Agency criticised digital gold and the methods of its extraction. Within a month, authorities in several Chinese provinces ordered miners to cease operations. Among them Yunnan, Qinghai, Xinjiang and Inner Mongolia.

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