Has the market turned? Bitmain's mining machines worth $80 million are in place

Bitmain's move marks a turning point in the mining market. After last year's shrinking production capacity, mining companies have begun to reinvest and make market layouts in advance.

Author: Wolfie Zhao

Compiled by: Krypton 12

Whether Bitmain can regain its former glory may really depend on God.

According to cryptocurrency mining farm operators in southwestern China’s province familiar with Bitmain’s plans, the mining giant has deployed about 200,000 mining equipment in the region, aiming to take advantage of low electricity prices during the flood season to regain market advantage.

Sources said that although the rainy season in southwest China (including Sichuan and Yunnan) is not expected to arrive until May, Bitmain has begun to reach cooperation agreements with several local mining farms so that they can be fully prepared in advance. This time, they will deploy a series of the latest mining machines and older mining machines with better performance, such as Antminer S11 and S15, as well as Antminer S9i and S9j. Currently, on the official Bitmain online store, the latest models of S11, S15 and T15 are all shown as "sold out".

However, it is not clear which proof-of-work cryptocurrency Bitmain will mine using these mining machines during the flood season.

For Bitmain, its revenue mainly comes from the sale of mining equipment rather than independent mining, but at this important time, trying independent mining is indeed an opportunity that cannot be ignored, because it will greatly reduce their costs.

The retail prices of the S9j and S11 mining machines shown on Bitmain’s official website are $400 and $500 respectively. Assuming that Bitmain uses its entire inventory - a total of 200,000 mining machines, it means that their cost during the rainy season this summer will reach $80 million to $100 million (and this does not include the S15 mining machine, which sells for around $1,000).

f2pool, the world's third largest mining pool operator, previously launched an index to track mining profits. According to the calculation method of the index, the current benefits of using S9j, S11 and S15 mining machines for direct mining are higher than those of direct sales. According to f2pool's mining profit index formula, if calculated based on the current coin price and the base electricity cost of $0.05 per kilowatt-hour, these three mining machines can earn about $0.87, $1.8 and $2.88 in profits per day; however, if calculated based on the average electricity price cost of $0.037 during the flood season, the relevant profit values ​​will increase to $1.29, $2.24 and $3.38 respectively. Even if we assume that Bitmain has deployed all low-end S9j mining machines, based on 200,000 devices, they can still earn a monthly profit of $7.7 million.

At present, a Bitmain spokesperson declined to comment on the matter.

The market turning point has arrived

The expansion of Bitmain's mining operations is an important sign of the transformation of the cryptocurrency market. Last year's bear market in the cryptocurrency market caused more than 600,000 Bitcoin miners to shut down, which also stimulated the sale of second-hand mining equipment, including Antminer S9, at a discount, which greatly increased the supply of mining machines on the market.

In addition, the impact of the reduction in mining activities last year is also reflected in Bitmain’s existing mining business.

On October 9, 2018, the computing power of all SHA265 mining machines under Bitmain was about 2339PH/s. Assuming that they all used Antminer S9 with a mining power of 14TH/s, it means that Bitmain deployed and operated about 170,000 mining equipment at that time. (1PH/s=1000TH/s)

On March 5, 2019, the computing power of all SHA265 mining machines under Bitmain has dropped to 1692PH/s, which means that under the same assumptions, the company has unplugged the power of about 50,000 miners' mining machines in the past few months, when the number of mining machines in normal operation was about 120,000.

The hashrate of Bitcoin and Bitcoin Cash is 44,973 PH/s and 1500 PH/s respectively. According to this number, all the hashrate of Bitmain accounted for 3.6% of the total hashrate of the SHA265 mining algorithm in March.

However, as time came to the end of March, the market seemed to be changing.

As a large number of miners flock to southwest China, Bitmain can enjoy the ultra-low electricity price of $0.037 per kilowatt-hour provided by local hydropower stations. If they all use the latest S11 Antminer with a computing power of 19.5TH/s, the 200,000 mining machines deployed can increase Bitmain's computing power by another 3800PH/s, accounting for 7.9% of the total network computing power. Although it is still impossible to determine the specific data of Bitcoin's total network computing power during the summer rainy season, it is estimated that the rainy season will reach 70EH/s, exceeding the historical high of 60 EH/s.

Will Bitmain succeed or fail at this?

Proprietary mining used to be Bitmain's most important source of income, but now it only accounts for a small part of its total revenue. Last September, Bitmain hoped to be listed on the Hong Kong Stock Exchange. At that time, they disclosed financial data showing that self-operated revenue accounted for only 7.9% in 2017, while this proportion was as high as 20.3% in 2015. What is more noteworthy is that in 2018, Bitmain's self-operated revenue accounted for half again, only 3.3%.

At the same time, Bitmain began to rely more and more on the sale of mining equipment, with the proportion of mining machine sales revenue in total revenue increasing to 80.5% in 2017, compared with 78.6% in 2015. It is also worth noting that in 2018, the proportion of Bitmain's mining machine sales revenue has increased to 94.3%.

The intensified bear market of cryptocurrencies in the second half of last year has caused a lot of losses to Bitmain. According to Bitmain’s undisclosed financial data, their net loss in the third quarter of 2018 reached US$500 million.

As of the end of June last year, Bitmain had deployed 200,000 mining machines in 11 mining farms in Sichuan, Xinjiang and Inner Mongolia for self-mining and hosting. In July last year, Bitmain's mining power was about 1692PH/s, which means that they were running about 120,000 mining devices.

Summarize

In general, we can gain the following three insights from Bitmain’s plan:

1. Bitmain plans to deploy 200,000 of its own mining equipment in southwest China to take advantage of cheap hydroelectric power this summer.

2. The estimated cost of deploying these mining machines is about $80 million. Even so, Bitmain may make more profit from mining itself than from selling these mining machines.

3. Bitmain's move marks a turning point in the mining market. After last year's shrinking production capacity, mining companies have begun to reinvest and make market layouts in advance.