2021Q1 Mining Research Report: More and more listed companies are entering the mining industry

Summary of key points

1. Limited production capacity Since January 2020, the price of Bitcoin has skyrocketed by more than 600%, but the maximum increase in computing power is only about 55%. Due to the limited production capacity of mining machines, the growth rate of Bitcoin computing power is relatively slow compared to the price increase. Since the beginning of 2020, its peak computing power has only reached 174EH;

2. Higher marginal benefits . The skyrocketing prices and the limited capacity of mining machines have made Bitcoin mining extremely profitable, and some obsolete mining machines can already be restarted;

3. Network congestion As the market is hot, the degree of Bitcoin congestion has also increased. Since 2011, transaction fees have accounted for 11% of miners' income, with a peak of nearly 30%. The median Bitcoin transaction fee has also grown from less than $1 to about $10 now;

4. ASIC and GPU mining machines The mining market is still dominated by ASIC mining machines, and Ethereum mining is still dominated by GPU mining machines;

5. Mining machine manufacturing From 2020 to date, Bitcoin mining machines are still the mainstream, and the newly released mining machines mainly come from Bitmain, MicroBT and Innosilicon. With the development of the Ethereum market, leading mining machine manufacturers (such as Innosilicon) have also begun to focus on Ethereum mining machines;

6. Overall, the average payback period for Ethereum mining is 100.67 days, with an average annualized rate of return of 457.7%. In comparison, the average payback period for Bitcoin mining is 148.75 days, with an average annualized rate of return of 307.75%, which is lower than the rate of return for Ethereum mining. In comparison between Bitcoin and Ethereum mining, although the rate of return for Ethereum mining is higher, the price of Ethereum mining machines is generally expensive, and the initial investment is much higher than that of Bitcoin mining machines.

7. The mining pool market structure is basically fixed. Compared with the first quarter of last year, the centralization level of Bitcoin computing power has remained basically unchanged, and the top four mining pools in the entire network still account for more than half of the computing power; Binance and Huobi have made breakthroughs in mining pools, and Binance pool's mining machines are the most advanced;

8. "Crazy" More and more listed companies are entering the mining industry, and the stock prices of almost all listed companies are positively correlated with the price changes of Bitcoin. With the sharp rise in Bitcoin since the fourth quarter of 2020, the stocks of these companies have also risen. The stock price changes of some companies are even close to ten times that of Bitcoin, which is even more "crazy" than the price fluctuations of Bitcoin.

1. Hot events

1.1 Industry Information

① In December 2020, Linzhi launched a new Ethereum ASIC mining machine Phoenix, with a computing power of 2600Mh/s, which is currently the most powerful Ethereum mining machine on the market;

② In February 2021, The9 announced that it had signed a $10 million cooperation framework agreement with a Filecoin mining machine service provider to purchase Filecoin mining machine server clusters and technical services in cash.

③ On February 18, 2021, Nvidia (NVDA.US) announced that it would release a series of new chips specifically for mining Ethereum, the second largest cryptocurrency. This new chip is called CMP, and its full name is Cryptocurrency Mining Processor, which means digital asset mining processor. An Nvidia spokesperson said that the first batch of chips will be available in March.

④ In February 2021, Bitcoin mining company Northern Data plans to go public in the United States to raise $500 million. The company is headquartered in Frankfurt and owns the world's largest digital asset mining facility in Rockdale, Texas, with a total installed capacity expected to reach 1 million kilowatts by the end of 2021.

1.2 Policy Hotspots

① In January 2021, the Office of the People's Government of Ganzi Tibetan Autonomous Prefecture issued the "Ganzi Prefecture State-level Industrial Concentration Zone Assessment Measures (Trial)" and the "Ganzi Prefecture Industrial Concentration Zone Construction Guidelines" to guide Bitcoin mining to gradually transform into a distributed cloud computing center, and gradually build a digital economy full industry chain integrating data production, aggregation, processing, trading, and application.

② In January 2021, Iranian police confiscated about 45,000 Bitcoin mining machines that illegally used subsidized electricity. Mohammad Hassan Motavalizadeh, head of Iran's state-owned power company Tavanir, said that these miners consumed 95 megawatts of electricity per hour at super cheap prices, and the total consumption was equivalent to the electricity usage of a city with a population of more than 500,000.

③ Pakistan's Khyber Pakhtunkhwa province has passed a draft resolution declaring the legalization of digital assets and digital asset mining. Dr. Sumera Shams, a member of the provincial council, said the move would put Pakistan in a better position in the world's digital competition. The local government has decided to build two Bitcoin mines and approved the creation of digital asset funds.

④ Kentucky legislators in the United States submitted a draft bill related to the commercial mining tax of digital assets, proposing to attract digital asset mining companies by exempting personal tangible property used directly and electricity used for commercial mining of digital assets from sales and use taxes.

2. Market Overview

2.1 Bitcoin Market and Network Computing Power

“Since January 2020, the price of Bitcoin has skyrocketed by more than 600%; but the computing power has increased by as much as 55%

Since Bitcoin ushered in its highlight moment in the fourth quarter of 2020, the market has finally entered the much-anticipated bull market. The recognition of Bitcoin by traditional institutions is a key factor in the rise in Bitcoin prices.

Starting from January 2020, Bitcoin experienced a 312-day drop from $7,000 to around $4,000, and then began to rise rapidly from the fourth quarter. The 30-day average ROI has also been in an absolutely positive range since the fourth quarter of 2020, and reached its highest value in January 2021, exceeding 100%.

Bitcoin 30-day mobile ROI, source: CoinMetrics, TokenInsight

Affected by the price, the overall Bitcoin computing power is at a fluctuating upward level. However, due to the limited production capacity of mining machines, the growth rate of Bitcoin computing power is relatively slow compared to the price increase. Since 2020, its computing power peak has only reached 174EH.

Bitcoin price and computing power changes, source: CoinMetrics, TokenInsight

Bitcoin price and network computing power trends, source: CoinMetrics, TokenInsight

2.2 Miner Marginal Revenue (%)

“The surge in prices and the limited capacity of mining machines have made Bitcoin mining extremely profitable, and some obsolete mining machines can now be restarted.

TokenInsight analyzes miners' income by introducing two indicators, namely, Miner's Profit Margin and Miner's Marginal Cost of Creation. The formula for calculating miners' marginal production cost is as follows:

Block Reward refers to the block reward generated by the Bitcoin network every day (expressed in the number of Bitcoins, this value is 1800, but it may change depending on the situation); Hashrate refers to the hash rate; Power Efficiency refers to the power consumption of the hash rate; Electricity refers to the price of electricity; Operation Costs refers to the operating costs. This formula shows the production cost of a mining machine that mines 1 Bitcoin. The marginal benefit of a miner is the price minus the production cost.

The marginal profit of miners (taking Antminer S19 Pro 110T as an example, the electricity cost is US$0.05 and the operating cost ratio is 15%) remained at 70%. It dropped to 45% when the market fell sharply, and then recovered to 65%.

The marginal production cost (taking Antminer S19 Pro 110T as an example, electricity cost is $0.05, and operating cost ratio is 15%) remains at around $4,000-$5,000 after halving. With the increase in computing power and difficulty, the price has reached a maximum of nearly $8,000. In contrast, due to the limited production capacity of mining machines, the yield is still very high.

Bitcoin marginal production cost and marginal revenue (Ant S19 Pro 110T), source: TokenInsight

Taking the old mining machine S9 14T as an example, it has completely failed to start up after the third Bitcoin halving. However, with the rise in Bitcoin prices, mining using obsolete mining machines can still be profitable.

Bitcoin marginal production cost and marginal revenue (Ant S9 14T), source: TokenInsight

Using Bitcoin is becoming “expensive”

As we said in our 2019 Mining Annual Report, the Bitcoin network needs to become expensive and become a "luxury". As the market heats up, Bitcoin congestion has also increased. Since 2011, transaction fees have accounted for 11% of miners' income, with a peak of nearly 30%. The median Bitcoin transaction fee has also grown from less than $1 to about $10 today.

The proportion of transaction fees in miners’ income, source: Coin Metrics, TokenInsight

Since 2020, miners have been accumulating Bitcoin for most of the time. However, after Bitcoin broke through $20,000, miners began to sell Bitcoin in large quantities. By February 21, miners' selling behavior began to slow down. The reason may be that seeing that Bitcoin rose faster than expected, they had new expectations for the future of Bitcoin.

Miners’ Bitcoin “net position”, source: Glassnode

“The mining machine capacity is limited, and the high returns from mining will continue for some time.

Even if the price of Bitcoin rises sharply, the increase in computing power is very limited due to the production capacity of mining machines. This makes mining a very profitable business. Mining machines are currently out of stock among manufacturers, and mining machine futures have been scheduled for half a year later. The price of second-hand mining machines is now about three times the factory guide price (taking S19 Pro as an example).

As the market is very optimistic about the future of Bitcoin, the selling pressure of Bitcoin will be very limited. More and more listed companies are beginning to make their own layout for Bitcoin. Some listed companies, such as Tesla, directly purchase Bitcoin as an investment reserve; while some companies enter the Bitcoin mining industry by purchasing mining machines or directly acquiring mining pools.

The rapid rise of Bitcoin has given a large number of ordinary users who have held Bitcoin for a long time the opportunity to "unwind", while ordinary users who plan to enter the market may be waiting for the opportunity of a "pullback", and may even have waited from $20,000 to the current $52,000. In the case that the above-mentioned miners are also selling Bitcoin, the final ownership of Bitcoin will flow to a small number of wealthy individual investors and institutional investors. These investors usually choose to hold Bitcoin for a long time, which is one of the reasons why we see a continuous net outflow of Bitcoin from exchanges.

3. Mining Machine

3.1 Chip

“ ASIC mining machines are still the mainstream in the mining market, and GPU mining machines are still the main mining machines for Ethereum

At present, GPU miners and ASIC miners are the mainstream mining machines in the mining market, while CPU miners and FPGA miners account for a small proportion, mainly concentrated in the field of altcoin mining. From the perspective of mainstream currencies, due to the rising cost of BTC mining, GPU miners have basically disappeared from the BTC mining market, and GPU mining has fully shifted to the Ethereum mining market. GPU miners support mining of multiple currencies, while ASIC miners mainly mine BTC and BTC fork currencies, each with its own advantages and disadvantages. With the continuous expansion of the Ethereum market, several ASIC miners for Ethereum have also appeared.

ASIC mining algorithm support quantity distribution, source: ASIC Miner Value, TokenInsight

Comparison of mining machine chips, source: Circuit City, TokenInsight

ASIC is a chip specially customized to meet certain specific needs. It has far more advantages than FPGA and GPU in terms of performance, size and power consumption. Therefore, after entering the Ethereum market, ASIC miners that use the Ethash algorithm and break through the 4G memory limit quickly became the most profitable mining equipment. Take Linzhi Phoenix as an example. As of February 22, 2021, its daily net income has exceeded US$300.

According to ASIC Miner Value data, as of February 2021, there are 206 ASIC mining machines on the market, of which 99 support the SHA-256 algorithm, accounting for the largest proportion of 46.12%. After 2018, the number of mining machines released has gradually decreased, but the average computing power has been significantly improved with technological advances. The mining machines released in 2021 can already reach a computing power of 100Th/s.

The proportion of ASIC mining machines released, source: ASIC Miner Value, TokenInsight

Distribution of Ethereum mining machine types, source: F2Pool, TokenInsight

3.2 Manufacturers

“Since 2020, Bitcoin mining machines are still the mainstream, and the newly released mining machines mainly come from Bitmain, MicroBT and Innosilicon.

According to ASIC Miner Value data, as of February 2021, the mining machines still in use on the market are manufactured by 28 manufacturers, supporting mining of mainstream digital assets such as BTC and ETH, as well as some altcoins. Among these mining machines, the products from Bitmain are the most, accounting for 29% of the mining machine models; followed by Innosilicon, MicroBT and other manufacturers. Canaan and Ebang, mining machine manufacturers listed on the US stock market, have fewer mining machine models, accounting for only 9% of all models. Mining machine models produced by other manufacturers account for about one-third of the total number of mining machine models.

Distribution of mainstream cryptocurrency mining machine models by manufacturer, source: ASIC Miner Value, TokenInsight

Changes in the number of newly listed mining machines since 2020, source: ASIC Miner Value, TokenInsight

From 2020 to now, the number of new mining machine manufacturers has shown a gradual downward trend. Compared with the "hundred flowers blooming" before 2020, only 11 manufacturers have launched a total of 33 new mining machines since the beginning of 2020. Among them, there are 17 Bitcoin mining machines, accounting for slightly more than half; 4 Ethereum mining machines, the release time is concentrated in the second half of 2020. With the development of the Ethereum market, leading mining machine manufacturers (such as Innosilicon) have also begun to exert their efforts in the direction of Ethereum mining machines, but manufacturers such as Bitmain and MicroBT have not yet launched Ethereum mining machines. Considering the huge potential of Ethereum, it can be foreseen that in 2021, Ethereum mining machines will be an important point of contention for major mining machine manufacturers and new manufacturers.

Among the current leading mining machine manufacturers, Bitmain and MicroBT have performed relatively stably. Although the mining bonus period of 2018 has passed, the two manufacturers will still launch 2-5 new products every six months to meet market demand. In comparison, the performance of listed mining machine manufacturers is relatively general: in 2020, Canaan only launched two products in the second half of the year, while Ebang has not launched any new products for more than a year, and its product updates are relatively weak. The bull market that began in the fourth quarter of 2020 has not had a significant impact on the product iterations of the two mining machine manufacturers.

At present, there are two listed companies among the mining machine manufacturers: Canaan and Ebang, which were listed in November 2019 and June 2020 respectively, and both are listed on Nasdaq. From the financial performance point of view, the performance of mining machine manufacturers has been relatively general since 2019. Take Cannan as an example, its total loss in 2019 reached 148.6 million US dollars. Since 2020, affected by the epidemic and the bear market, its revenue has shrunk significantly. Only in the third quarter, the revenue decreased by about three quarters compared with the same period in 2019, and it continued to be in a loss state as of the third quarter. The revenue situation of another mining machine manufacturer, Ebang, is similar to that of Canaan, and both are in a loss state.

Although the bull market that started in the fourth quarter of 2020 has stimulated the demand for mining machines, due to the limited production capacity of mining machines and the difficulty in obtaining spot goods, the delivery period of mining machines has been scheduled to the second or even third quarter of 2021, affecting the flow of funds. It is foreseeable that the performance of mining machine manufacturers will lag behind, and the poor performance on paper will continue for some time.

It is worth noting that in order to cope with the short-term poor performance and losses, listed mining machine manufacturers have begun to consider comprehensive transformation and expand their business scope to smooth the revenue curve and stabilize cash flow. Cannan and Ebang will start their own mining business in January 2021, while Ebang plans to start digital asset exchange business in the first quarter of 2021.

Average mining power and unit power consumption of Bitcoin mining machine models compared with the same period last year, source: ASIC Miner Value, TokenInsight

In terms of mining machine research and development, there are currently 8 mining machines that have been announced and will be launched in 2021, of which half are SHA-256 algorithm mining machines. Compared with the same period last year, the average computing power of mining machines using the SHA-256 algorithm is 77.5Th/s, which is basically the same, but mining machines produced by established mining machine manufacturers (Bitmain, Cannan) generally reach a new high of 90Th/s or even 100Th/s, while the unit power consumption has further decreased. Currently, the unit power consumption per T computing power is only 39.1 watts, which is about 10% lower than the same period last year.

The eight new mining machines are produced by six manufacturers: Bitmain (2 models), Canaan (1 model), Innosilicon (2 models), Goldshell (1 model), Pandamer (1 model), and iPollo (1 model). Among them, Bitmain and Canaan are still mainly Bitcoin mining machines, and Innosilicon has both Bitcoin and Ethereum mining machine product lines; other mining machine manufacturers focus on manufacturing altcoin mining machines and Ethereum mining machines.

In terms of Ethereum mining machines, Innosilicon currently has certain technical advantages. The computing power of its latest model can reach 2Gh/s, far exceeding other Ethereum mining machines except Linzhi Phoenix.

Ethereum mining machine computing power ranking in Q1 2021, source: ASIC Miner Value, TokenInsight

3.3 Analysis of investment returns of mining machines

In this report, TokenInsight uses the market share of digital assets as the standard to conduct an ROI analysis on SHA256 algorithm (Bitcoin) and Ethash algorithm (Ethereum) mining machines that were released as of the first quarter of 2021. Mining income mainly comes from the block rewards from the network when blocks are generated. When denominated in RMB or USD, the income is also affected by currency prices and exchange rates. Mining costs mainly include the purchase cost of mining machines, electricity costs, and mining machine operating costs.

For intuitive analysis, TokenInsight uses the following mining ROI formula:

Among them, PR T is the price per unit of computing power, D iff is the mining difficulty, BR is the number of block rewards, PR Crypto is the market price of digital assets, PR e is the electricity cost, and WT is the power consumption per unit of computing power. The ROI formula ignores transaction fee income, other additional income (such as uncle blocks, etc.) and mining machine operating costs.

The payback period of the initial investment cost can be estimated by the unit computing power cost and the unit computing power daily income. As of now, the relevant information of the mining machines released in 2021 is shown in the following table.

Statistics of newly released Bitcoin and Ethereum mining machine parameters in 2021 (statistical time: February 24), source: official websites of various mining machine manufacturers, TokenInsight

The payback period and revenue of each mining machine are shown in the figure below. It can be found that:

① The Ethereum mining machine Phoenix is ​​currently the mining machine product with the highest return. Calculated based on the ETH price of $1,666 (average price in the afternoon of February 24, 2021), its payback period is only 50 days, and the annualized rate of return is 726.4%;

② Among the newly released mining machines, more than half of them can pay back within 100 days, and the longest payback period is 279 days (AvalonMiner 1246);

③ Overall, the average payback period for Ethereum mining is 100.67 days, and the average annualized rate of return is 457.7%; in comparison, the average payback period for Bitcoin mining is 148.75 days, and the average annualized rate of return is 307.75%, which is lower than the rate of return for Ethereum mining;

④ Comparing Bitcoin and Ethereum mining, although Ethereum mining has a higher yield, Ethereum mining machines are generally expensive, and the initial investment is much higher than that of Bitcoin mining machines.

In summary, although the revenue of Ethereum miners has hit new highs since the beginning of 2021, and Ethereum mining has been popular in the market for a while, Bitcoin mining machines still have sufficient revenue and are more cost-effective than Ethereum mining machines. In addition, with the maturity of Ethereum mining machine technology and the business adjustment and rebalancing between graphics card manufacturers for chip mining and other user needs, the Ethereum mining machine market in 2021 has sufficient development potential and prospects.

Estimated payback period and annualized rate of return for newly released mining machines in 2021, source: ASIC Miner Value, F2pool, TokenInsight

Note: Affected by the bull market of digital assets, some mining machines are out of stock. At the same time, the prices of some newly listed mining machines have not yet been determined. Therefore, the estimated price and futures price are used as reference for profit calculation. The actual profit may have a slight deviation.

4. Mining Pools

4.1 Mining pool computing power distribution

“ The competition pattern of mining pools is basically fixed, and Binance and Huobi have made some breakthroughs

In the first quarter of 2020, Binance has decided to compete with Huobi, OKEx and other exchanges in the mining pool business. After a year of development, Binance Pool has become the fourth largest mining pool, with 11% of the computing power share. Huobi Pool has moved up one place and is currently ranked sixth, with 8% of the computing power. The computing power of OKEx mining pool has dropped from 7% last year to 0.3%, currently ranking 21st. The competition pattern of other leading mining pools has basically not changed, and the computing power share has basically remained unchanged.

Compared with the first quarter of last year, the centralization level of Bitcoin computing power has remained basically unchanged. The top four mining pools in the entire network still account for more than half of the computing power.

2020Q1 mining pool computing power distribution, source: BTC.com, TokenInsight

2021Q1 mining pool computing power distribution, source: BTC.com, TokenInsight

“Binance pool’s mining machines are the most advanced

TokenInsight studied the distribution of ASIC mining machines in various mining pools through the "average computing power of miners" indicator. The results show that the miners in Binancel pool use the most advanced machines and have the highest average computing power per capita. Poolin and BTC.com are second and also average. Consistent with last year's data, ViaBTC mining pool has the lowest average computing power per capita and uses relatively backward machines.

However, since the information on the number of miners is voluntarily reported, it cannot cover the entire situation of existing mines and miners. Therefore, this analysis can only serve as a way to understand the distribution of ASIC mining machines at this stage.

Average computing power per miner, source: MiningPoolStats, TokenInsight

“F2Pool supports the most currencies and a variety of innovative currencies

Almost all mining pools support mainstream currencies such as Bitcoin, Ethereum, Bitcoin Cash, BSV, Litecoin, etc., and some mining pools only support mining of mainstream currencies.

Among the top mining pools, only F2Pool supports innovative currencies on a large scale. Specific innovative currencies include HYC, IMG, CLO, PGN, YEC, CHI, SEL, SERO, XVG, VTC, BCD, HC, DGB, etc.

Number of currencies supported by mining pools, source: MiningPoolStats, TokenInsight

5. Publicly listed companies

“ More and more listed companies are entering the mining industry, and some companies are even crazier than Bitcoin

TokenInsight has counted 9 listed companies in the United States or Canada. These companies are all involved in the mining industry of Bitcoin or other currencies to a large extent. Some companies have even turned their core business into digital asset mining.

Mining data related to listed companies in the US & Canadian stock markets, source: listed company official website, Yahoo finance, TokenInsight, 2021.02.24

The listed companies' computing power statistics in the table do not include the mining machines that have been ordered but not yet delivered. 500.com acquired all the computing power of the BTC.com mining pool after acquiring it, and currently ranks first in computing power among all companies.

The stock prices of almost all listed companies are positively correlated with the price changes of Bitcoin. With the sharp rise of Bitcoin since the fourth quarter of 2020, the stocks of these companies have also risen. The above table shows the stock price and Bitcoin price changes in the past month. The stock price changes of some companies are even close to ten times that of Bitcoin, which is even more "crazy" than the price fluctuations of Bitcoin.

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