Who will take on Bitcoin’s Chinese miners?

Original title: Who will accept Chinese Bitcoin miners?

Source: Honeycomb Finance Author: Jasmine

The fluorescent lights emitted by rows of Bitcoin mining machines went out. On the evening of June 19, videos of Bitcoin miners in Sichuan shutting down their machines circulated on social networks among people in the cryptocurrency circle, with the background music of "Bye" expressing their helplessness.

The "Notice on the Cleanup and Shutdown of Virtual Currency 'Mining' Projects by the Sichuan Provincial Development and Reform Commission and the Sichuan Provincial Energy Bureau" issued on June 18 shows that for virtual currency 'mining', relevant power companies in Sichuan need to complete the identification, cleanup and shutdown work before June 20.

The shutdown came as expected, and with it came a continued decline in the total Bitcoin hashrate. As of 0:00 on June 21, OKLink data showed that the total Bitcoin hashrate was 124 EH/s, compared to 126 EH/s the day before, a drop of more than 30% from the historical peak of 181 EH/s on May 13 this year, and has fallen to the level of November last year.

Affected by Chinese regulation, Bitcoin mining is set to exit China. In April this year, academic research data showed that Chinese miners accounted for more than 75% of the Bitcoin network's computing power. From June 20, this proportion will drop indefinitely.

Nowadays, going overseas has become an inevitable choice for miners who still want to continue mining. So, where will be their new destination and new starting point?

Texas may be the 'biggest winner'

The news of power outages and miners shutting down their machines in Sichuan even made the Washington Post, in which Jiang Zhuoer, the founder of the Litecoin mining pool, was described as a "Chinese Bitcoin tycoon" who was heading to the United States, and he planned to move his mining machines to Texas and Tennessee. Miners who had the same idea as Jiang Zhuoer were already preparing shipping containers, intending to install his mining machines on the oil fields in western Texas.

Texas seems to be a new location favored by Chinese miners. Companies such as Bitmain, Blockcap, Argo Blockchain and Great American Mining have already "built stations" in the state. The biggest attraction there is the abundant and cheap electricity resources.

In February this year, people were shocked by the news that 1 kWh of electricity in Texas, the United States, was 65 yuan. At that time, many states in the United States were hit by winter storms, and millions of households and businesses were without power. Texas was the hardest hit area, and electricity prices soared 200 times. But if you calculate carefully, before the surge, 1 kWh of electricity in Texas was about 5 cents, equivalent to more than 0.3 yuan in RMB, which is almost the same as the mining electricity price in southwest China during the flood season.

The electricity price in Texas is cheap. Based on the abundant renewable energy infrastructure, 20% of the local electricity comes from wind power, and the electricity distribution is more market-oriented, so users can freely choose their electricity suppliers. In addition, there are local politicians who support crypto assets, such as Governor Greg Abbott, who has publicly supported Bitcoin mining and believes that this may be a valuable industry for the United States.

In addition to Texas, Kentucky is also attracting Bitcoin miners through policy guidance. In March this year, the coal-rich region passed a law to provide tax incentives for Bitcoin mining companies that invest $1 million to configure new machines in the state.

The United States, with its abundant energy resources and open policies, is indeed a good choice for Chinese miners who want to migrate. However, this world-class capitalist power is also concerned about the impact of high energy consumption of Bitcoin mining on the environment, especially liberal environmentalists everywhere.

After activists in New York’s Finger Lakes region tangled with a Connecticut private equity firm this year over the firm’s conversion of an old gas-fired power plant into a bitcoin mine, the New York state legislature is considering a bill that would block bitcoin mining at carbon-emitting power plants.

Alex de Vries, a financial economist who has long been critical of Bitcoin's energy consumption, expects the migration of Chinese Bitcoin miners to have an impact. "The scale of their energy needs could be equivalent to that of a small Western country that would need to relocate elsewhere," he said. "Finding a new home for all these miners is a huge problem."

Chinese mining companies have already established stations in Kazakhstan

In addition to some areas in the United States, Kazakhstan, which is close to China, has also become one of the choices for miners. And Fengchao Finance noticed that as early as May 24, a Bitcoin mining company headquartered in Shenzhen had released news that it had chosen to go overseas to a "neighboring country."

A month ago, BitMining, formerly known as '500 Lottery Network', was reported in overseas media for its plans to build a Bitcoin mining facility in Kazakhstan. BitMining plans to invest more than $9 million to build a 100 MW data center in the local area. The project is being carried out in cooperation with two local companies, of which BitMining holds an 80% stake. The relevant cooperation in the project will reportedly take effect on July 1, 2021.

It is worth noting that just three days before this news was exposed, on May 21, a meeting of the Financial Stability and Development Committee of the State Council clearly stated that it would "crack down on Bitcoin mining and trading activities." It was also from this day that Inner Mongolia, Xinjiang, Sichuan and other regions in China where Bitcoin miners are concentrated implemented policies and began to clean up Bitcoin mining companies.

It now seems that BitMining is extremely sensitive to policies and it seems that it had no illusions about continuing to engage in mining in China at that time. In May, the company also announced an investment of US$25 million to build a new data center in Texas, USA. This investment is one of the agreements it signed with Dory Creek, a wholly-owned subsidiary of Bitdeer, a mining machine and cloud computing company. The two companies plan to build and operate a 57-megawatt mining facility, mainly using low-carbon energy.

Kazakhstan, which has been favored by Bitcoin Mining, has gradually become a new force in the rise of Bitcoin computing power in the past two years. Data from the BTC mining tracking tool "Bitcoin Mining Map" of Cambridge University shows that Kazakhstan's computing power once exceeded 6%, ranking fourth in the world, second only to China (65%), the United States (7.2%) and Russia (6.9%).

A local miner revealed to a person in the domestic cryptocurrency circle that Kazakhstan plans to collect mining tax at a price of 1 tenge (local currency unit, equivalent to 0.002 US dollars) per kilowatt-hour from 2022. This information has not been authoritatively confirmed.

But what is certain is that in June last year, Kazakhstan passed a legal amendment to clarify the regulation and taxation of cryptocurrency mining, which will impose a 15% flat tax on mining in an effort to promote its oil-dominated economy and cope with the economic impact of the COVID-19 pandemic.

Three months later, the country's Minister of Digital Development Baghdad Musin said they were negotiating to attract 300 billion tenge (local currency unit, equivalent to $714 million) worth of investment into the cryptocurrency sector. He revealed that there were already 13 operating mining farms in the country and another 4 under construction, and that 'more than 80 billion tenge ($190 million) had been invested in the industry.'

If we look at the location conditions for migration, Kazakhstan, which borders western China, seems to be a more convenient option. However, from the perspective of long-term sustainable supply of clean energy, the policy support and energy conditions in Texas, USA are more certain.

In comparison, China's other neighbor, Russia, can also be considered a country with great computing power. The country's well-known mining farm, BitRiver, is located in the Irkutsk region, just a few kilometers away from the Bratsk Hydropower Station with a power generation capacity of 4,515 megawatts. The all-inclusive electricity price is said to be less than three cents, which is comparable to the electricity price for domestic mining.

But Jiang Zhuoer expressed concerns about Russia's business environment in an interview with The Washington Post, saying that his colleagues' mining machines had been confiscated by corrupt police.

In any case, for Chinese miners who want to continue to make money in the Bitcoin mining industry, going overseas has become a foregone conclusion. However, a more practical problem is that before the global epidemic is generally under control, both mining machines and personnel will face cumbersome procedures. At the current stage, for miners, it is a loss of money; for the Bitcoin network, it is a period of declining computing power; for the market, it is another low point in prices.

In the summer after June 20, 2021, Sichuan’s flood season will continue, but no Bitcoin will be produced in China from then on.