During the flood season in a bull market, how will Bitcoin miners choose?

The advent of the Bitcoin bull market is accompanied by a significant increase in mining profits. Will this change the "migration" pattern of previous years to a certain extent? At the same time, will the increase in computing power in North America and Europe also weaken the impact of seasonal computing power transfer in China? How do many factors, such as the bull market, mining machine production capacity, and global computing power layout, affect miners' decisions? Let us take a look at this year's mining trends with these questions in mind.

Relocation during flood season: How do the miners who “win without doing anything” view the “migration” during flood season?

Before the flood season in previous years, a considerable number of domestic miners would relocate their mining machines from thermal power mines in the northwest, starting the process of removing mining machines from shelves, logistics, and putting them on shelves. The computing power of the entire Bitcoin network will change accordingly, and the difficulty cycles before and after the flood season will also produce fluctuations of more than ±10%, which will bring changes in mining income.

Taking 2020 as an example, relocating mining machines to the flood season means a nearly 40% reduction in electricity costs. Before this round of bull market, electricity costs accounted for a high proportion of mining income, and optimizing electricity costs became almost the most important factor in miners' decision-making. After all, not all mining machines can remain above the profit point in a bear market.

The above is a comparison between the shutdown price of the S9 mining machine and the price of Bitcoin. In early November 2020, the profit margin of S9 began to turn upward and continued to increase as the price of the currency "took off".

Since the bull market started, the surge in the price of coins has made the 16nm generation models represented by S9 profitable. Even with the annual electricity price of 0.34 yuan/kWh in the north, S9 can maintain a 40% share of electricity costs and achieve a good profit status. In this case, will the "fully profitable" miners choose to migrate during the flood season?

"Seeking stability" has become the main consideration for miners at present. Migrating machines will result in loss of time and machine wear and tear. It will take about a week for transportation, and another week to wait and complete the installation and startup of the machine. The installation and transportation of machines generally means at least a 2%-3% damage rate. Depending on the model and the age of the machine, the damage rate is even higher, which means investment in maintenance costs and longer waiting time. This makes miners who pursue uninterrupted operation reconsider the issue of relocation.

Li Haiyang, a major Bitcoin miner, believes that the scale of this year's Fengshui relocation will be smaller than in previous years. "The electricity cost of machines with a unit power consumption of less than 60W accounts for a very low proportion. Considering the time wasted on the road for relocation, the damage caused by transportation and the stability of Fengshui power supply, most miners hosted in northern sites will not choose to relocate to Fengshui sites if the mining income has increased significantly."

Even so, some miners still have to relocate. Affected by the closure of the mines, miners who have hosted their machines in Inner Mongolia need to reselect a site. Inner Mongolia requires the closure of virtual currency mining by the end of April, and most miners have already started to relocate in March. A mine owner in Inner Mongolia revealed that all the mining machines have been moved to their own site in Xinjiang. Another part of the miners chose to move directly to the flood-prone site in the south. The flat water period - the "prelude" to the flood season - will begin around April 25, when electricity can already meet the relatively stable operation of some machines. This time point also happens to leave a certain amount of preparation time for the miners to relocate. It is reported that the southern mines that have already reserved the machine positions have basically put the mining machines on the shelves, waiting for water and electricity to be supplied and started up together with the machines that originally stayed in the flood-prone mineral last year.

Affected by the shutdown time, miners in Inner Mongolia have started to relocate. Miners who choose to move to the flood season mines may start their migration earlier than in previous years, during the normal water season or earlier. The other part of the miners who moved from other parts of the north to the south still mainly chose the flood season in May. The flood season will come about one month after the start of the normal water season. This year's flood season officially begins around May 20. Depending on the water inflow and maintenance progress of different sites, the southern flood trusteeship site will operate at full capacity around June 10 until the end of November.

Mine site demand: What new characteristics are emerging in sites in the north and south?

Last year, the price of coins was low, the production capacity of mining machines was insufficient, the overall supply of mining machines in the north and south was "oversupply", and there was a greater demand for mining machines in the north to move south. Some miners were still waiting and watching before and after the "halving" in May last year, thinking whether to "shut down" their 16nm mining machines directly, or if they moved, whether the income during the flood season could make up for the cost of relocation. During this year's flood season, miners no longer think about such issues, and the mining hosting market in the north and south will also show different characteristics.

The price of managed electricity is rising.

Whether in the north or the south, the hosting electricity prices have been raised due to the arrival of the bull market. The annual electricity price of northern mines has risen to 0.4 yuan/kWh, and the price of flood-prone sites has also increased. According to the statistics of F2Pool's special event during the flood season, 150 flood-prone mines have submitted data. The southern sites have marked the hosting electricity prices ranging from 0.23 yuan to 0.28 yuan/kWh, and the average electricity fee level is about 0.25 yuan/kWh. It is expected that the site load during the flood season this year will be about 1.5 million kW.

Compared with the average level of 0.35 yuan/kWh in the north and 0.21 yuan/kWh in the south last year, mining farms follow the market and raise the hosting electricity price accordingly. Compared with the price increase, miners care more about stable and continuous electricity, and can seize the opportunity to "full power-on time" and maximize the value of computing power. Therefore, for southern mining farms that can provide stable electricity during the dry season, the competitive advantage is increasing.

The northern mines operate at near full capacity during flood season.

A staff member of a large mining farm located in the Zhundong region of Xinjiang said that the reservation for the hosting site this year has ended and almost all the machine positions have been booked. The staff of the mining farm also introduced that "basically before May, the investment promotion pattern of the northern mining farms during the flood season can be determined, and the willingness to relocate can be basically clear." At present, not many miners choose to relocate. Due to the continued popularity of mining, the difference in electricity prices caused by floods has been weakened to a certain extent. Some mining institutions choose to transport the latest models directly to the northern site. The vacancy of some northern sites during the flood season in previous years may be difficult to see this year.

Fengshui Mine has adjusted its investment promotion focus to lock in customers through high-quality sites.

The power supply is sufficient, but the production capacity of mining machines is limited, and the demand for mining machines to move south has decreased. This year's "decisive battle during the flood season" is an opportunity for miners to seize better power, and it is also a competition of competitiveness between mining farms. Chen Lei, founder of BitBlue Whale, said, "The total scale of newly added hydropower consumption parks and hydropower direct supply during this flood season is larger than last year. According to factors such as cost, stability and machine specifications, machines will also enter mining farms of different grades." When talking about the demand for hosting, he said that this year hydropower will mainly undertake machines transferred from Inner Mongolia and low-performance machines, and the proportion of machines moved south from Xinjiang will not be too high.

A high-quality site is reflected in the stability of electricity. Since hydropower lacks a certain degree of stability compared to thermal power, being able to ensure a stable and continuous power supply has become one of the competitive advantages. In addition, the location of the mine, its disaster resistance, and compliance are all key factors in the competition for Fengshui mines.

The "consumption park" mentioned above supplies "consumption electricity", and its obvious advantage comes from uninterrupted power supply. Mining farms that can provide consumption electricity resources also provide more guarantees on the basis of low electricity prices. This is also one of the reasons why high-quality flood-prone sites can still lock in customers in advance under fierce competition. Some southern mining farms have reached cooperation with northern mining farms, and directly "relay" the computing power of northern mining farms during the flood season, which also helps flood-prone mining farms lock in customers.

According to the statistics of the special session of the Yuchi flood season, the total load of the flood site is roughly estimated to be 150kW. If calculated based on the current medium-power mining machine Shenma M20S, such a power load can carry a computing power scale of 30EH/s. From the perspective of investment promotion, a medium-to-large hydropower mining farm with a load of 100,000 kW said that most of the machine positions in the mining farm have been reserved. Relatively small-scale mining farms are continuing to attract investment, and the progress is basically the same as in previous years. Overall, the 150kW load may not be filled.

Total network computing power: Will the obvious increase in computing power during the flood season reappear?

As "shutdown coin price" has gradually become an unfamiliar term in the bull market, the computing power of the entire network will also show different growth characteristics.

The service life of the older generation of models has been significantly extended. As we have said before, due to the shortage of chip supply and the continuous rise in coin prices, 16nm models such as S9 no longer need to consider the issue of "shutdown coin price".

It is estimated that the overall computing power of S9 is about 40EH/s. According to last year's expectations, S9 can continue to mine until the end of the flood season after the halving, and then bid farewell to the historical stage of Bitcoin mining. Now, the value of S9 mining machines has skyrocketed with the bull market, and they can be turned on at the northern electricity price level, and the proportion of electricity costs has been significantly reduced.

At the beginning of 2021, according to the non-flood electricity price and the combination of difficulty and coin price at that time, the electricity cost of the S9 series accounted for 50%-60%. By mid-April, although the difficulty had been rising, the electricity cost ratio was not affected much, but dropped to about 30%. If calculated at the same difficulty and coin price level, at the flood price of 0.25 yuan/kWh, the electricity cost ratio of the S9 will be around 20%, which is still quite efficient for mining.

New computing power continues to grow and become more geographically dispersed.

The demand for mining machines has far exceeded the supply. For the latest models such as the Shenma M30 series, Avalon A1246, and Ant S19, based on the current difficulty and coin price, the proportion of electricity costs can be less than 10% under the flood season electricity price. The spot stocks of major mining machine manufacturers have been sold out. As early as the beginning of the year, mining machine futures have been scheduled to the third quarter. As the mining machines ordered earlier continue to arrive, we will also see the continued growth of the computing power of the entire network during the flood season.

This growth is more like a relatively slow linear growth rather than an "explosion". Although we have heard news of some traditional domestic companies entering the mining market since the beginning of the year, this does not necessarily mean that the entire network has added new computing power, but there are also cases of transfer of computing power ownership, such as 500.com and BitDeer reached a purchase agreement for 113P computing power in February.

The computing power of the entire network will also become more dispersed globally, and the growth rate of overseas computing power may be higher than in previous years. Yao Xianjun, vice president of overseas sales at Canaan, the manufacturer of Avalon mining machines, told F2Pool that "Canaan's domestic and overseas businesses are growing steadily, and the global service center strategy has been launched. It has accumulated a wide range of customers in the Russian-speaking region, North America and Northern Europe, and mainly serves listed companies, institutions with professional fund backgrounds and old mining companies."

The above is some public information on the computing power deployment plans of relevant institutions in various places in 2021, sorted by the time the news was released.
Since the end of 2020, we have been hearing news about the upcoming deployment of overseas computing power, such as the computing power layout of companies such as Marathons, Bitfarms, and Foundry in North America. If everything goes according to the schedule revealed in public information, in the first quarter of this year, about 13EH/s of computing power has been added to the Bitcoin network, and there will be at least 10.8EH/s of computing power growth in the second quarter. Combined with the plans for the third and fourth quarters, it is known that at least 21.8EH/s of computing power will be added to overseas regions throughout the year, mainly from North America, and partly from Russia and Europe.

The above table reflects the computing power deployment plan we collected from public information. In areas where public information has not been released, such as China, Europe and most other regions, we can also expect more computing power growth.

Looking at the entire network, the computing power was about 100EH/s at the beginning of 2020, about 140EH/s at the beginning of 2021, and 166EH/s at the end of the first quarter of 2021. Of the 26EH/s computing power that increased in the first quarter, North America accounted for at least 42%. In terms of growth, although domestic computing power is still one of the main forces, the proportion of computing power growth in North America, Europe and other places is also very considerable.

Combined with the changes in global computing power, we can predict that the impact of the unique "Bitcoin mining flood season" in China on the computing power of the entire network may be weakened. The scale of mining machine shutdown and relocation may be less than in previous years. In addition, due to the limited growth of computing power and the significant proportion of overseas mining machines, the shutdown and restart of mining machines during the flood season in China may not have a significant impact on the change in the difficulty of the entire network as in previous years.

Although the bull market has affected the regional pattern of mining, the flood season is undoubtedly still one of the main highlights of the second quarter. There are still a few weeks before the actual arrival of the flood season. How will miners balance, how will the flood season mines seize the opportunity, and what changes will the computing power show? Let us wait and see.