The recovery of the mining industry has doubled the price of second-hand mining machines, and the payback period of new mining machines is longer

Odaily Planet Daily Translator | Moni

Since April, the bitcoin bull market seems to have returned, and with it, the price of domestic second-hand mining machines has almost doubled. This is because bitcoin mining has started to make money again.

According to blockchain data company TokenInsight, the price of Bitcoin was about $4,000 in early April this year, and the cost recovery period for investing in mining machines at that time might take 200-350 days (calculated based on the market price on April 8). However, as time came to the beginning of May, the current Bitcoin price has risen to nearly $5,800 (the Bitcoin price on CoinMarketCap was about $5,778.57 at the time of writing this article), which means that the investment payback period for second-hand mining machines has been reduced to less than 200 days.

Michael Zhong, cryptocurrency mining analyst at TokenInsight, said:

“As long as the payback period for mining machines is less than 200 days, miners will seize the opportunity to make money. Obviously, the rise in Bitcoin prices has stimulated miners’ demand for second-hand mining machines. However, a market recovery will also cause mining machine prices to rise again, and then the payback period will return to more than 200 days again.”

For miners like Darius Sharif Samani, today’s market dynamics have had a huge impact on them. Darius Sharif Samani currently mines in China. He owns his own mining machines and also acts as a sales agent for other miners. He revealed that the price of second-hand Antminer S9 began to rise as early as March this year, when the price was about $140. This mining machine made by Bitmain can provide 14TH/s of mining power.

But soon, the price of second-hand S9 mining machines quickly climbed to more than $250 in April, and the price of second-hand Antminer S9 with better configuration (computing power can reach 14.5TH/s) will exceed $280, and some even reach $320 per unit. Darius Sharif Samani said that if calculated at $320, it means that the cost of 1TH computing power will reach $22 (320/14.5).

Darius Sharif Samani says:

“If the price of second-hand mining machines continues to rise, buyers may not buy them. Because apart from a few well-funded mining farms, individual miners are rarely willing to spend $23 to buy new mining machines for 1TH computing power.”

Are mining machine wholesalers and market makers starting to hoard goods?

Darius Sharif Samani also revealed that some mining equipment wholesalers told him that certain specific models of mining machines had been sold out, which made Darius Sharif Samani very puzzled because the market could not change so quickly. He said:

“There hasn’t been much change in the market in the past few months, but now for the first time, someone told me that some mining machines have been sold out. This has not happened for a long time.”

In fact, Darius Sharif Samani suspected that mining hardware wholesalers were “market making,” explaining:

“Some people may be hoarding mining machines, and by squeezing out individual miners from the market, they can make a lot of money when the market recovers.”

Michael Zhong, a cryptocurrency mining analyst at TokenInsight, also agrees with Darius Sharif Samani's view. He believes that some mining equipment wholesalers and second-hand mining machine market makers in the current mining machine market are hoarding, hoping to make a fortune in the next bull market.

The mine plans to plan ahead for the flood season

Indeed, the recovery in Bitcoin prices has stimulated a large number of miners to return to the market, but another factor that is favorable to the Bitcoin mining market is the upcoming flood season.

Currently, the total computing power of the Bitcoin network is about 50EH/s, but with the arrival of summer, the southwest region of China, which is rich in water resources, can provide very cheap hydropower resources for mining farms. Some mining farm operators have previously estimated that during the flood season this summer, Sichuan and other places are expected to deploy more than 1 million mining equipment, which will bring the computing power of the Bitcoin network to 70EH/s, which will exceed the highest computing power record of 60EH/s in the Bitcoin network in August last year.

But the question is, who will provide the extra 10EH/s computing power? The answer is simple: mining machines.

10EH equals 10 million TH. Let's do a simple calculation:

• If the extra 10EH/s of computing power is provided by Antminer S17 (each with a computing power of about 45TH/s), this means that if the price of Bitcoin remains stable, at least 220,000 mining machines will be put into the market in the next few months;

• If the extra 10EH/s of computing power is provided by old second-hand mining machines such as Antminer S9 (each with a computing power of about 14TH/s), it means that if the price of Bitcoin remains stable, at least 700,000 mining machines will be put into the market in the next few months.

The “Futures Mine” business model is unreliable

Apart from the rising price of Bitcoin and the flood season, there are other factors driving the increase in demand for second-hand mining machines.

Chris Zhu, co-founder of cryptocurrency mining pool Poolin, believes that the entry of new capital is another factor driving the demand for second-hand mining machines. He said:

“In 2019, a lot of new money actually flowed into the mining industry because some investors wanted to mine cryptocurrencies in a bear market, which would make their risks much smaller.”

Fundamental Labs, a Shanghai-based blockchain investment company that recently raised $44.5 million, is a "newcomer" to the bitcoin mining industry. They are preparing to "bet" on the bitcoin mining market before the summer arrives. Chris Zhu and Raymond Yuan, founder of Fundamental Labs, believe that there may be more mining farms in the mining market this year, while the number of individual miners may decrease.

Chris Zhu also discovered another problem. Today, a so-called "futures mining farm" business model has emerged in the mining market. Some mining farm operators do not look for customers after the mining farm is built, but have already reached cooperation with customers before that. Not only that, they will first raise funds and equipment from customers, and then use this money as the initial capital for building mining infrastructure.

Chris Zhu said that this "futures mining" business strategy is very unreliable because no one can be sure that Bitcoin mining will be profitable. Raymond Yuan, founder of Fundamental Labs, also agrees with Chris Zhu's view. He said that the supply of mining machines is limited, and some mining farm operators may overestimate the benefits of the flood season, so the total supply of available equipment in the mine may exceed the total supply that mining machine manufacturers can provide.

The investment payback period of new mining machines may be longer

It is worth mentioning that although many new equipment will be launched in the mining machine market this year, these mining machines either cannot be put on the market in large quantities or have a long investment return cycle.

Take the three mining machine manufacturers Bitewei, InnoSilicon and Bitmain as examples:

• The InnoSilicon T3 mining machine has a computing power of up to 43TH/s and is priced at $1,580, but it will not be shipped until June.

• Bitewei (English brand name MicroBT) has launched a new mining machine WhatsMiner M20S in April this year with a computing power of up to 70TH/s and an energy consumption of 48W/hash. However, the company's founder Zuoxing Yang said that the delivery in May can only meet the buyers' orders of 1,000-2,000 units. If the order volume exceeds 10,000 units, it will have to wait until July or August.

• Bitmain seems to be doing well. They recently launched their flagship Antminer S17 and S17 Pro, and the first batch of products were all shipped in May and are currently marked as sold out.

However, the return on investment of new mining machines may be longer than that of second-hand mining machines. Michael Zhong, a cryptocurrency mining analyst at TokenInsight, believes that the current market price of Bitcoin has not reached the level of 2017, so the cost return rate of investing in new mining machines may be lower now. Moreover, unless the price of Bitcoin stabilizes above $8,000, mainstream mining machine manufacturers will not mass-produce new mining machines.