Bitcoin mining industry outlook for 2020

This article is from Bitcoinmagazine, the original author is Jessie Willms, a former US government and political financial technology researcher

Odaily Planet Daily Translator | Moni

In December 2019, CoinShares Research, a research arm of digital asset management company CoinShares, released a report on the Bitcoin mining network. It showed that the entire Bitcoin mining industry was in good shape at the end of 2019, with computing power almost doubling in the past six months, a new generation of more powerful and efficient mining technology emerging on the market, and the industry increasingly choosing sustainable renewable energy.

The report noted that based on this year’s average Bitcoin price, fee ratio, and block frequency, miners achieved a total mining revenue of $5.4 billion in 2019. Although this figure was a slight decrease from 2018, it was a significant increase from the total Bitcoin mining revenue of $3.4 billion in 2017.

CoinShares Research pointed out that unlike the market period in the previous report, the Bitcoin mining market has not undergone large-scale structural changes in the past six months and is relatively calm. Although there were a large number of bankruptcies and capital transfers in the market between November 2018 and June 2019, "expansion" remained the overall tone of industry development in the second half of 2019.

As the Bitcoin mining industry has established positive momentum since the end of 2019, we will see an acceleration of multiple factors that determine the growth of the crypto industry and Bitcoin as we enter 2020, such as increased computing power, the launch of new mining equipment, and the upcoming Bitcoin block reward halving.

Good news for Bitcoin mining hashrate in 2020

According to a report by CoinShares Research, Bitcoin mining computing power "grew significantly" in the second half of 2019, from 50 exahashes per second (EH/s) to 90 EH/s, and once reached a peak of 100 EH/s, almost doubling. The report analyzed that this growth was attributed to the launch of a new generation of more powerful and efficient mining equipment, while the average price of Bitcoin also saw a relatively strong increase.

In fact, just after the release of the CoinShares Research report, Bitcoin computing power continued to grow. According to Bitinfochart data, the total Bitcoin computing power reached 111.86 EH/s on December 22, setting a record high. In the latest episode of the "What's Halvening" podcast, Coinshares Research Director Chris Bendiksen analyzed why the total Bitcoin computing power is growing. He believes that this is mainly driven by the Chinese market. Currently, China's Bitcoin computing power has accounted for 65% of the total global Bitcoin mining computing power.

In addition, Chris Bendiksen also pointed out that the improvement of mining machine technology is also one of the reasons for the significant increase in Bitcoin mining computing power. Since most of the latest mining equipment is produced in China, Chinese miners will take the lead in upgrading to the next generation of technology. However, Chris Bendiksen predicts that as the latest mining technology gradually enters the Western market, the Bitcoin computing power in other countries will also increase, and there are signs that as Chinese miners upgrade to the latest mining machines, they are shipping old mining machines (such as Bitmain Ant Miner S9) to Iran and Kazakhstan.

Blockstream Chief Strategy Officer Samson Mow said he agrees with Chris Bendiksen’s optimistic view on the Bitcoin mining market in 2020, and also revealed that his company now has mining operations in Quebec, Canada and Adel, Georgia, USA. Samson Mow added:

“As Bitcoin miners replace older mining equipment with newer, more efficient machines, the total Bitcoin hashrate will continue to rise in 2020.”

Will China Continue to Dominate Bitcoin Mining in 2020?

As we mentioned earlier, CoinShares stated in its report:

“More than 65% of Bitcoin’s computing power comes from China, which is the highest level since the statistics of the entire network computing power began in 2017.”

Although the Bitcoin mining industry has seen some growth around the world in 2019, China still dominates the industry compared to North America, Russia, and the Middle East. Some people may see this "dominance" as a concern, believing that it may increase the "centralization" of the Bitcoin industry, but even so, China's dominance in the Bitcoin mining market remains difficult to shake in 2020.

However, in the view of Samson Mow, while China’s “dominance” in Bitcoin computing power is worthy of attention, it is not a big problem. He explained:

“I wouldn’t worry about China’s dominance in the Bitcoin mining industry. The main advantages of China’s cryptocurrency mining industry are faster construction time and lower initial capital expenditures, plus the proximity of miners to ASIC miner assembly sites, which also promotes the development of the local mining industry… Now that Blockstream has established Bitcoin mining infrastructure in North America, with its own mining operations and other related businesses, the capital expenditure advantage is not so important, and we have additional advantages such as low electricity costs.”

CoinShares Research pointed out in its report that China's mining policy has also undergone a "significant shift". In April 2019, the National Development and Reform Commission issued the "Guidelines for Industrial Structure Adjustment (2019 Edition, Draft for Comments)", which listed virtual currency "mining" activities as an eliminated industry. However, in the "Guidelines for Industrial Structure Adjustment (2019 Edition)" released by the Chinese government website in November, "virtual currency mining" was deleted from the eliminated industry.

Samson Mow stressed that there is no need to worry about China expanding its dominance in the Bitcoin mining industry in 2020:

“Just like Bitcoin mining in North America or anywhere else, mining in China is still done by individuals and companies, so the concept of ‘Chinese hashrate’ itself is misleading, because Bitcoin mining in China can come from foreign individuals and companies, just as there are Chinese miners in North America.”

How will the 2020 Bitcoin block reward halving affect the mining industry?

For this question, I, like everyone else, must want to find the answer. But here, let’s take a look at what some industry insiders in the Bitcoin mining industry think about how the upcoming Bitcoin block reward halving (expected to occur in May 2020) will affect the mining industry.

Andrew Kiguel, CEO of Hut 8 Mining, said the Bitcoin blockchain reward halving will be the most influential factor in the mining industry in 2020:

“All Bitcoin miners should prepare for the upcoming Bitcoin block reward halving, which will reduce the block reward from 12.5 BTC to 6.25 BTC, forcing less efficient miners to reevaluate their operations.”

Regarding Bitcoin mining machines, CoinShares stated in its report:

“In the spring of 2020, the Bitcoin block reward will be halved. As a result, the older mining equipment currently widely used on the network, such as the Bitmain Antminer S9, may be nearing the end of its life. Unless the price of Bitcoin rises sharply or mining operators can obtain electricity costs of around 1 cent per kilowatt or less, the Bitcoin block reward halving will have a big impact on miners.”

Coinshares research director Chris Bendiksen also expressed the same view in the latest episode of the "What's Halvening" podcast. He believes that Bitcoin mining computing power will be affected by the block reward halving and claimed:

“If the price of Bitcoin remains the same, then we may see a 50% drop in the hash rate of the entire network, and some mining companies will go out of business. However, if the price of Bitcoin doubles, then the hash rate of the entire network will return to its original level.”

In contrast, Blockstream Chief Strategy Officer Samson Mow seemed more optimistic about the impact of the block reward halving, saying:

“The upcoming Bitcoin block reward halving will reduce the daily supply of Bitcoin from 1,800 to 900, but because people’s overall awareness of Bitcoin has increased a lot, and cryptocurrency exchanges and trading platforms are much more mature than four years ago, I expect the price to still rise - if not during the block reward halving, there will be growth in the following months.”

It is undeniable that the halving of Bitcoin block incentives will affect all aspects of the mining industry in 2020, especially some major indicators, such as mining machines, computing power, prices, etc., but no one knows how big the impact will be.

Andrew Kiguel asked some follow-up questions:

“Will the Bitcoin hashrate drop significantly after the 2020 Bitcoin block reward halving? I think there will be a certain degree of decline, because some miners using old mining machines may not be able to make money. So, will the Bitcoin price rise due to the block reward halving? Or at least maintain the current price? For this question, I think the Bitcoin price will rise, but probably not as high as some people expect, maybe at most 50% to 100% higher than the current price level.”

Obviously, starting in 2020, the Bitcoin block incentive halving and its expected impact will be the top concern of every Bitcoin miner.

Wes Fulford, CEO of Bitfarms, said:

“To maintain the economics of mining before and after the Bitcoin block reward halving, the price of Bitcoin needs to increase significantly, otherwise as costs rise, many miners will choose to unplug their mining machines, causing the hashrate of the entire network to drop sharply. Given Bitfarms’ low-cost structure, competitively priced electricity resources and new generation mining machines, we are well positioned to withstand any short-term fluctuations in the mining economics.”

Will Bitcoin Mining Technology Continue to Advance in 2020?

Coinshares research director Chris Bendiksen pointed out in the latest episode of the "What's Halvening" podcast that as cryptocurrency mining companies such as Canaan and MicroBT increasingly compete with mining machine owner Bitmain, mining technology is developing at an unprecedented speed.

In addition, since Canaan Creative has successfully listed in the United States and Bitmain is also applying for an initial public offering in the United States, the Bitcoin mining hardware market will become more "decentralized" in 2020. In the report of CoinShares Research, some major market participants in the mining machine manufacturing industry in 2019 are listed, namely:

• Bitmain and its Antminer 15 and 17 series of miners;

• MicroBT and its Whatsminer 10 and 20 series of miners;

• Bitfury, its latest Clarke chipset mining machine series;

• Canaan Creative and its Avalon 10 mining machine series;

• Innosilicon and its T3 miner;

• Ebang and its E10 mining rig.

CoinShares Research said in the report:

“These latest miners have five times the hashrate of their predecessors, which means that even on a unit basis rather than volume basis, the new generation of miners outperforms existing miners on the market. Some manufacturers that sold previous generation miners on the market are now preparing for mass production of the new miners, such as Bitmain and MicroBT.”

It’s no surprise that Bitfarms CEO Wes Fulford has recognized the importance of using the latest and most efficient mining technology in 2019, as only with the support of these new technologies will Bitfarms be able to increase its production capacity in 2020. Wes Fulford added:

“We have added 13,300 next-generation mining machines, increasing our hashrate by 291% this year. Currently, next-generation mining machines account for 73% of Bitfarms’ total installed hashrate, making us one of the most energy-efficient cryptocurrency miners on the public market.”

Plouton Mining, a Bitcoin mining company that uses pioneering solar technology and now operates in the Mojave region of California, is also paying close attention to mining technology issues in 2020. Ramak J. Sedigh, CEO of Plouton Mining, said:

“In 2020, and in the years that follow, we will continue to focus on running the most efficient mining hardware and maintaining a very high energy efficiency ratio, which is actually the key basis for miners to maintain operational profitability.”

But investment in new technologies, of course, depends on the continued profitability of Bitcoin in 2020. As Ramak J. Sedigh said, his biggest concern is whether Bitcoin can continue to maintain a stable price in 2020:

“The success of any cryptocurrency mining, and even the success of the entire industry, actually depends on the stability of Bitcoin. When the price is low, everyone’s plan is how to survive. We need to keep the Bitcoin price at a high average level so that traditional investors have confidence in Bitcoin and Bitcoin-related projects. On the other hand, my bigger concern is that the Bitcoin market is subject to price manipulation, because with a total market value of $150 billion, Bitcoin is very easy to manipulate through exchanges, which can easily lead to price fluctuations.”

CoinShares concluded in the report that looking ahead to 2020, the Bitcoin mining industry will not make miners feel very secure, because price fluctuations are still an unknown. Although there are still many problems with the halving of Bitcoin block rewards, there are still many adventurous people in the community who are willing to invest billions of dollars in the Bitcoin mining industry.

Chris Bendiksen, Director of Research at Coinshares, concluded:

“Almost all risk analysis will tell you that Bitcoin mining is a high-risk industry, but based on the behavior of market participants, you will find that miners still have confidence in Bitcoin and its network.”

This article is translated from https://bitcoinmagazine.com/articles/hashing-ahead-look-bitcoin-mining-2020. If reproduced, please indicate the source.