China mining shock may not be over yet, experts suggest

Earlier this year, the Chinese government took the momentous step to ban any crypto mining operations based within its borders, causing a massive exodus of hashing power — 168 exa hashes per second (EH/s) to nearly 86 EH/s as of June 23, representing a drop of nearly 40% — from China to surrounding countries. 

As a quick refresher, the hash rate refers to the total computational power needed to acquire a single Bitcoin (BTC). In other words, one can say that while central banks issue fiat currencies, miners are provided with new Bitcoin for solving pieces of complex mathematical code referred to as blocks.

Prior to the ban, China laid claim to 65% of the world's total Bitcoin hashing power. Since the aforementioned move, however, a massive number of mining pool operators have packed up their suitcases and left for greener pastures. In one example, Canadian mining firm Bitfarms noted that its revenue had increased by nearly 30% quarter-over-quarter in Q2 2021, with the company mining 26% more BTC than it had done so in comparison to the previous quarter.

What’s happening exactly?

After a couple of months of turmoil, BTC’s hash rate levels now seem to have stabilized once again, with numbers seemingly returning to where they once were a few months ago. In this regard, data made available by crypto analytics firm CryptoQuant shows that the metric seems to have once again topped the 150 Exahashes mark at 152 EH/s, tripling the levels it had reached on June 28 (52 EH/s).

It is also worth mentioning that on May 13, Bitcoin's average hash rate scaled up to an all-time high of 197.6 EH/s, only for the figure to slump by more than 65% as mining rigs across China were faced with the “great migration.” That said, with the metric now approaching early June levels, it is estimated that new all-time high values could be registered in the next couple of months.

Providing his thoughts on the matter, Kevin Zhang, vice president of business development at crypto mining firm Foundry, told Cointelegraph that despite the perceived recovery, things are still far from returning “back to normal,” adding that the 152 EH/s reading was based on a short 24-hour hash rate estimate window, where luck was high across the entire network and blocks were solved faster than expected, adding:

“Right now, the 24 hour moving average for hash rate is once again hovering around ~130EH/s, which is in line with its three- and seven-day moving averages. BTCs hash rate is certainly recovering and returning back to normal. However, a majority — if not all — of the large-scale miners in China that were displaced from the crackdowns have either shipped their mining fleets abroad or are warehousing them until they can find open hosting capacity.”

He further highlighted that, as things stand, the entire world is still constrained on readily available infrastructure that can support all of the displaced mining units to help maintain Bitcoin’s hash difficulty.

“It certainly is exciting to see hash rate come online and a lot of it is coming from new orders finally being delivered. By the end of the year, we very well could be setting new all-time-highs for network difficulty and hash rate”, Zhang closed out by saying.

Effects of China's ban will linger

Philip Salter, chief technical officer for Bitcoin mining firm Genesis Digital Assets, told Cointelegraph that many Chinese miners have continued to hold out, hoping for an improvement of the situation inside China or possibly wait for an attractive opportunity to relocate overseas. 

However, he added that most sizable mining sites have been bought up over the course of 2021, and there is simply no short-term capacity for deploying 5-8 gigawatts of mining hardware, basically implying that the situation hasn’t really reached any sort of tangible resolution just yet. Salter added:

“So, the situation isn't over yet and I think we'll be seeing the effects of China's mining exodus for at least another year. Probably most mining hardware will resurface sooner or later and the hash rate will return. But, we will need to wait and see if it will happen slowly over time, or if panic fueled hardware sales will dump the market prices.”

Similarly, Igor Runets, founder and CEO of colocation services provider for green cryptocurrency mining BitRiver, told Cointelegraph that while a rebound in BTCs hash rate figures was bound to occur — as previously ordered machines continue to be delivered to their international buyers — he still believes that most machines that went offline in China due to the crackdown are still yet to find a home abroad.

On a technical note, Rugnets pointed out that in the few weeks following the crackdown Bitcoin’s total hash rate lost over 60 exahashes of computing power. And given that most of those mining machines were not the latest-generation machines, he believes that a total of 750,000 machines would have most likely gone offline as a result of the crackdown.

Lastly, in Rugnets' view, Bitcoin’s hash rate will continue to rise as previously ordered machines continue to be shipped by manufacturers. Furthermore, he pointed out that every unit of these new mining machines packs in about eight-times more hash rate compared with older generation machines that dominated the Chinese market previously. “Bitcoin’s hash rate may even set a new all-time-high before year-end,” he said.

North American mining companies step up

As per data released by the Cambridge Electricity Index, United States-based mining pools have started sweeping up large portions of BTC’s hash rate even before June, a time when China’s local ban hadn’t even come into full effect. In this regard, Riot, a U.S.-based mining firm, reported $31.5 million in mining-related revenues for the three-month period — up over 1,500% from its Q2 2020 revenue of $1.9 million. 

The firm also reported a 38% increase in the total number of Bitcoin it was able to mine compared with the previous quarter, generating 675 BTC compared with 491 BTC in Q1. In fact, Riot recently initiated a $650-million 400 megawatt expansion project with Whinstone US, with a total of four additional power production facilities currently under construction.

Other North American mining firms that have recorded staggering year-to-date gains include Marathon (268%), Bitfarms (210%), Riot (126%) and Hut8 (180%). Not only that, data suggests that the aforementioned companies were able to generate an average of 58% more Bitcoin during the month of July than in June.

Commenting on his company’s recent performance, Marathon Digital Holdings CEO Fred Thiel revealed that during the second quarter of the year, the firm’s revenue rose by a sizable 220% (to nearly $30 million) in comparison with the previous quarter. Additionally, the company’s hash rate also increased by a whopping 196% over the aforementioned time window.

Thus, it will be interesting to see how Bitcoin’s hash rate recovery proceeds from here on out, especially with an increasing number of firms across the globe stepping up their production capacities.