New bidding war for Bitcoin mining: An estimated 220,000 Antminer S17s will be put into mining during the flood season

▯ As the price of Bitcoin rises, the operating profit of second-hand mining equipment is getting higher and higher

▯ As a result, the price of second-hand miners has almost doubled in recent weeks, with old Antminers costing between $250 and $320

▯ Between 220,000 and 700,000 mining machines may be put into use this summer

▯ Newer, more powerful mining machines take months to come to market and take even longer to recoup their costs

The cost of second-hand mining machines in China has nearly doubled in recent weeks as the price of bitcoin has risen over the same period.

The bull market that began in mid-April has increased the operating income of these mining machines, making them more valuable. According to TokenInsight blockchain data statistics, it would take 200 to 350 days to recover the cost of investing in most types of Bitcoin mining machines before April 8.

But bitcoin’s climb from the low $4,000s to over $5,000 in early April caused the payback period (the price of a mining machine divided by its daily profit) for several second-hand models to drop to less than 200 days.

“When the payback period is significantly below 200 days, more miners will feel there is an opportunity,” said Michael Zhong, a mining analyst at TokenInsight. “This further stimulates their demand for purchasing second-hand mining machines, causing prices to soar and will bring the payback period back above 200 days again.”

This market shift is having an impact on businessmen like Darius Sharif Samani, who owns machines in China and sells them on behalf of mining companies. Samani told CoinDesk that he started asking around in March and managed to buy a used AntMiner S9 for $140. The machines are made by mining giant Bitmain and can run calculations at speeds of 14 terahashes per second (TH/S).

Since then the price of the same machine has risen to at least $250, and buying an advanced version of the AntMiner S9 that produces 14.5 TH/s will cost more than $280, while some are even asking $320 per unit, or $22 per terabyte, Samani said.

If prices continue to rise, purchasing equipment for most mining machines may become prohibitive. Samani told CoinDesk:

“No one, except a few large and well-funded mining farms, is willing to spend $23 on new hardware.”

Out of stock or in stock?

Some mining equipment wholesalers even told Samani that some models were sold out.

“For the first time in months, someone told me they were sold out of certain models and it wasn’t going to last forever,”.

But he still doubts whether wholesalers are telling the truth when they claim they are out of stock.

“Some manufacturers are waiting for a bidding war to start.” “There may be a lot of retail miners, but they are being squeezed out.”

TokenInsight’s Zhong echoed that sentiment, adding that it’s usually mining machine wholesalers and second-hand dealers who are hoarding equipment.

Market expansion stage

In addition to the recent rise in Bitcoin prices, the overall expectation of abundant cheap hydropower in China during the summer has also led to an increase in demand for mining equipment.

Mining farm operators in southwestern China have previously estimated that more than 1 million machines will be running in the region during the summer, which could push the Bitcoin network’s hashing power up to 70 exahashes per second (EH/s).

That would be a new all-time high after the previous record of 60 EH/s was set in August last year, according to Blockchain.info data.

If the extra 10EH/s comes from new models like the AntMiner S17, which produces around 45TH/s, that would mean 220,000 AntMiner S17s would be put into mining in the coming months (10 EH equals 10 million TH).

But if it were all from older second-hand models like the AntMiner S9 (14TH/s), the number of mining machines online would be as high as 700,000.

Currently, the world’s largest cryptocurrency by market capitalization now has a total hashrate of around 50 EH/s.

Supply and demand

Chris Zhu, co-founder of China-based Poolin mining pool, said another driver of the growing demand for second-hand equipment is new money coming into the market.

“There’s a lot of new capital coming in this year, and they don’t have the experience of mining in the high-water mark of a bear market,” he added. “And they’re much less risk-averse.”

One of the new entrants is Fundamental Labs, a Shanghai-based blockchain investment company, which has raised a $44.5 million mining fund to invest in mining machines and mining farms before the summer.

Chris Zhu and Fundamental Labs founder Raymond Yuan both acknowledged that the number of mining farms on the market will outstrip the number of available mining machines this year.

“There are many so-called ‘futures mines,’ ” Zhu said — mine operators that attract customers to invest without building the actual mines in advance.

Zhu said these companies hope to raise money and equipment from customers in advance as initial funding for infrastructure construction, a strategy he sees as "very unreliable" because "what they are promising is something that is made out of thin air."

Fundamental Labs’ Yuan agreed, saying that there is a limited supply of new miners from manufacturers:

“It’s possible that the mine operators overestimated the flood season, so the total amount of mining machines used by the mines exceeded the total supply of mining machines.”

New models

In fact, although major mining machine manufacturers have launched more powerful models this year, few companies have been able to mass-produce products that meet market demand.

For example, MicroBT launched the WhatsMiner M20S in April, which has a computing power of up to 70TH/s and consumes only 48 watts per terabyte.

MicroBT founder Yang Zuoxing told CoinDesk that 1,000 to 2,000 of the units will be shipped in May, but orders for more than 10,000 will have to wait until July and August.

Likewise, orders for InnoSilicon’s latest model T3 miners, which cost $1,580 and have a hashrate of 43TH/s, will also have to wait until June for shipment.

On the other hand, Bitmain has launched its flagship AntMiner S17 and S17 Pro in recent months, with the first batch shipped in April and already marked as sold out. Advertisements on Bitmain’s website show that the company is selling the computing power of the S17 machine through a cloud computing platform, so it is possible that the company’s S17 products seem to have been hindered.

While these new machines are powerful, their payback period is still longer than second-hand machines because they cost more and Bitcoin prices are lower compared to the 2017 bull run.

Zhong concluded:

“Mining machine manufacturers mainly rely on the price of Bitcoin to determine their production scale,”

“Unless the price of Bitcoin can remain stable above $8,000, mining machine manufacturers will not be able to mass-produce the latest and more powerful equipment.”