The recent meltdown in crypto markets has hit the crypto miners real hard and a lot of them have been forced to shut their shops as crypto mining has become unviable. The hardest hit here are miners in China, who are paying a relatively higher cost compared to most countries in the world Hence, according to Coinshares latest report, to keep their mining rigs alive, miners are supposedly moving from China to countries where power cost is relatively cheaper
Cheap Electricity, fast internet connections, and cooler climates are what miners want
CoinShares, the crypto asset investment and research platform, has recently come out with a new 19-page report titled: “The Bitcoin Mining Network—Trends, Marginal Creation Cost, Electricity Consumption & Sources.” which is the is the second edition of CoinShares bi-annual mining report (the first being released in May 2018). This report puts forward the current situation and changing trends in the crypto mining industry which also includes significant and meaningful analysis of the geographic distribution, composition, efficiency, electricity consumption, and electricity sources of the Bitcoin mining network. The report also explains and analyses critical operational factors for a Bitcoin mining company like hash rate, marginal creation cost, hardware costs, and hardware efficiency.
The report estimated that,
“no more than 60% of miners currently remain within Chinese borders” and these too are “ mainly situated in a handful of provinces such as Sichuan, —Yunnan, Guizhou, Tibet, Xinjiang, Western Inner Mongolia and Heilongjiang. Out of these Sichuan is where 80% of the Chinese miners are located.“
It also stated that the key consideration driving the location decision for these miners was the presence of low-cost electricity, high-speed internet, and in the case of the Northern regions, low temperatures that reduce the need for the additional cost of cooling. But with falling cryptocurrency prices they’re slowly are becoming unviable to mine cryptocurrencies here unless renewable sources of energy are being utilized
After surveying the combination of publicly available literature and insight from industry insiders, the researcher behind this report, concluded that it was clear that miners found it unviable to operate their rigs in China and, in significant numbers, were leaving China, or choosing not to reinvest within China. Instead, they are setting up operations in certain regions of Scandinavia, Russia, Canada and the United States where the combination of cheap abundant electricity, friendlier regulation, fast internet connections and, to a lesser degree, cooler climates can be attained.
Source: Coinshare Report
The report also tried to cover the changing dynamics of the crypto mining industry and increasing use of renewable energy in mining cryptocurrencies. It said
“Among our findings is an estimate that since May, the market-average, all-in marginal cost of creation, at ¢5/KWh, and 18-month depreciation schedules has increased from approximately $6,500 to approximately $6,800. This suggests that, at current prices, the average miner is either: running at a loss and unable to recover capex, mining at electricity costs closer to ¢3/KWh, depreciating mining gear over 24-30 months, or paying less for mining gear than our estimates.”
While the report clearly states how changing dynamics that are affecting the crypto mining industry and how renewable energy is replacing fossil power to get viability to the mining business, the movement of crypto miners out of China would definitely hamper China’s prospect as a crypto mining country. At Macro levels it is a good sigh that crypto mining industry is getting distributed geographically so that no country, region or company can have centralized control over them.
Will China be able to hold back its miners and save its crypto mining industry? Do let us know your views on the same.
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Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.