Miners are in a tug-of-war: Will Bitcoin miners move to North America after the “halving”?

Compiled by: PANews

For some domestic miners who use high leverage, the upcoming halving of Bitcoin block rewards may be extremely unfavorable to them, but many industry analysts believe that the booming cryptocurrency mining industry in North America has the opportunity to fill possible market gaps.

Can North American miners seize the Bitcoin halving opportunity and benefit from the Chinese miners’ collapse?

High leverage increases risks for Chinese miners

According to CoinShares data, as of the end of 2019, the computing power owned by Chinese mining pools accounted for 65% of the total Bitcoin network computing power, while the computing power of mining pools in North America only accounted for 15% of the total Bitcoin network computing power.

However, some industry experts believe that some domestic miners are engaged in a "tug of war", and the upcoming Bitcoin block reward halving event next week may exacerbate the problem - in this case, in order to balance power, some computing power will be transferred to North America.

In fact, some domestic miners currently need to face two problems:

1. The company may be over-leveraged financially;

2. The next generation of ASIC mining machines will be affected by supply chain shortages.

At the same time, North American miners still have access to cheap renewable electricity resources, and North American investors' appetite seems to be growing.

It is undeniable that the halving of Bitcoin block rewards will indeed affect the business of over-leveraged domestic miners (because some domestic Bitcoin miners have used loans to pay operating costs instead of choosing to use cash payments). This means that some over-leveraged miners are likely to be "driven out" of the market or forced to restructure their business, otherwise it will be difficult to compete with competitors.

If the price does not increase as much as expected after the Bitcoin block reward is halved, these miners will face the risk of bankruptcy, even those using the next generation of mining machines, because they will have to use most of their mining income to repay debts. Since the price cannot reach the expected level, these miners must sell more Bitcoins. If their income is reduced by two times, they are likely to be the first miners to go bankrupt.

Ethan Vera, one of the operators of Luxor Mining Pool in North America, revealed that when the price of Bitcoin plummeted in March this year, almost all miners were required to add margin, so now some miners are in a highly leveraged state. Ethan Vera further stated: "Compared with North American miners, Chinese miners are more susceptible to leverage."

Ethan Vera confirmed that MatrixPort, a crypto financial services company owned by Bitmain co-founder Jihan Wu, provided loans to many large Chinese miners when the cryptocurrency market plummeted in March this year. These miners may have access to the cheapest electricity in the world, but most of their income may have to be used to repay the loans.

Once these chains break down, North American mining companies (especially those with the latest mining machines) will fill the gap in computing power.

Can North American miners really benefit from the "halving"?

Denis Rusinovich, director of DDH Digital Data Center and co-founder of Berlin Crypto Mining Group, which currently operates an 80-megawatt mining operation in Kazakhstan, expects that once more new-generation ASIC miners come online, it will have a significant impact on the redistribution of Bitcoin's computing power over the next 12 months.

Denis Rusinovich added that if the price of Bitcoin can remain at a high level after the block reward halving (such as $8,000 or higher), then inefficient miners can "survive for a while longer", but if the price of Bitcoin falls towards $4,000, a "price war" is likely to break out in the market, and larger Bitcoin mining farms will squeeze out small miners, leading to the risk of centralized mining.

In Ethan Vera's view, if the price of Bitcoin can be maintained at $9,000, it may harm the interests of North American miners in the short term, but it will still be beneficial in the medium term.

Samson Mow, chief strategy officer at Blockstream, agreed, adding: “We have seen a large portion of Bitcoin miners begin to move their operations to the North American market, including Blockstream, where we have 300MW mining facilities in Quebec and Georgia. Data AG (formerly Northern Bitcoin AG), headquartered in Munich, Germany, has built a 300MW mining farm in Rockdale, Texas, which is likely to become one of the largest Bitcoin mining facilities in the world.”

In fact, there are many other examples of the rise of the mining industry in North America, such as:

1. Upstream Data is a company that sells mining machines to oil drilling companies. Their mining machines support mining using flare gas as power.

2. VBit Mining Company is currently building a mining farm with 200 megawatts of electricity in Alberta, Canada.

It is worth mentioning that Miao Yongquan hopes that wealth can also flow into ASIC mining chip manufacturing. He said that "in the next few years, it is inevitable that major ASIC mining manufacturers will establish manufacturing plants in North America." However, Miao Yongquan does not want the upcoming Bitcoin block reward halving to affect the market distribution of computing power. On the contrary, he hopes that this process can be gradual. But in any case, North American miners will eventually become the main competitors of Chinese miners, and this competition will also develop from mining itself to broader areas such as hardware manufacturing.

Miao Yongquan explained:

“Miners with the lowest mining efficiency and the least financial reserves will be in trouble and may even be forced to shut down operations. In March of this year, when the price of Bitcoin plummeted, the total network computing power decreased and the mining difficulty decreased, but the more efficient miners mined more Bitcoin during this period. When the price recovered, the total network computing power began to recover, and the Bitcoin system operated as expected, and only the most efficient miners were able to survive.”

If the halving of Bitcoin block rewards causes a shift in computing power, it is likely to cause trouble for some large over-leveraged Chinese miners. Ethan Vera said that over the past few decades, China's rapid economic growth has made many Chinese investors more risk-averse than American investors. American investors see Bitcoin more as an opportunity than a risk. With the continuous change of concepts and the business disconnect caused by the over-leveraged operations of Chinese miners, North American miners will be ahead of Chinese miners in the emerging mining economy.

Remote North American town becomes a hot spot for mining industry

In fact, due to the cheap electricity costs and land prices in North America, Bitmain, a Chinese mining giant, also tried to enter the market.

According to a previous report by Wired magazine, Bitmain had received a 50% electricity discount and 80% land tax discount in Rockdale. Accordingly, the person in charge said that Bitmain would not only mine in Rockdale, but also build a world-class data service center here. And provide hundreds of jobs for this town with a population of only more than 5,000 people. However, this plan was shelved for a time due to the decline in the price of the currency and the internal struggle of Bitmain.

Until October 2019, Bitmain announced in Rockdale, Texas that it would build a 50-megawatt cryptocurrency mining farm with the Rockdale Development District (MDD) and DMG. But in January of this year, DMG announced the termination of this cooperation because the cost and operational efficiency did not meet the expected results.

In contrast, Whinstone has been successfully operating a Bitcoin mine in Rockdale. According to Bloomberg, it also won two new customers in January this year: Japan's SBI Holdings and Internet service provider GMO.

In North America, there are many small towns with similar "genes" to Rockdale. Ocean Fall, a Canadian "ghost town". The sawmill that the latter once relied on declined in the 1980s. The permanent population dropped sharply from 5,000 to less than 100, hence the name "ghost town". Today, the buzzing of mining machines has replaced the electric saws, and there is a large lake nearby to provide water for cooling. Another town that claims to have the world's largest mine, Medicine Hat, is located in Alberta, Canada, supported by sufficient wind power and abundant natural gas resources.

In addition, the Wenatchee area on the Columbia River in the United States and Massena on the Lawrence River have attracted mining companies from various countries because of their low electricity and land prices.

Looking to the future

The biggest challenge facing the emerging Bitcoin mining industry is how to properly scale and hedge against volatility risks.

Denis Rusinovich believes that the current Bitcoin mining market lacks a "hedging strategy" (PANews Note: Hedging is an option contract investment strategy involving limiting losses. In fact, there are already crypto financial institutions in China that provide this service), and there are no insurance services related to Bitcoin mining in the market - of course, some people in the market have begun to explore mining insurance brokerage business.

However, until various support services emerge, miners will have to stick to the script written by "Satoshi Nakamoto": inefficient miners may go out of business, so you need to make effective plans in advance before the halving.

If North American investors believe in Bitcoin, then this block reward halving may be the beginning of the entire mining industry decoupling from Chinese miners.

Reference articles:

Can cryptocurrency save a declining town? https://decrypt.co/27777/bitcoin-halving-could-bring-way-more-mining-back-to-north-america

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