China's Bitcoin miners seem to have a harder time than ever during the 2020 flood season

The rains are coming. The mining machines are humming. For Chinese bitcoin miners, now should be the best time of the year. The flood season, generally from June to October, brings a lot of rainfall, so the price of hydropower will be relatively low.
But this year is different, and it has been harder than ever for China’s bitcoin miners and operators, who account for an estimated 65% of the world’s multibillion-dollar bitcoin mining industry.
Since last summer, many mining farm operators have rushed to build new facilities in southwest China in anticipation of a sharp rise in the price of bitcoin following the “halving” of its block reward.
But compared to last year's "flood season", mining difficulty has almost doubled, because the block reward is halved, which not only means a reduction in revenue, but also an increase in mining difficulty. Bitcoin miners who entered the Bitcoin market since last year will have to wait longer to see a return on their investment in mining hardware and facilities.
“We’re already halfway through 2020, and the mining industry has already faced some huge challenges,” Thomas Heller, global business director at F2Pool, concluded in a recent blog. “Miners had to battle the macroeconomic black swan of March, navigate the smoke of the halving and a pandemic, and now they are preparing for the battleground for the rest of the year,” he wrote.
Competition is more intense than ever
"Many miners expected the bitcoin price to rise sharply after the halving," said Kevin Pan, CEO and co-founder of China's PoolIn, one of the world's two largest bitcoin mining pools (along with F2Pool). "In fact, not only was the bitcoin price not driven by the halving, but there was also a massive sell-off on March 12, resulting in massive forced liquidations and losses," he said.
In the two months since the halving, the price of Bitcoin has remained roughly around $9,000. Although Bitcoin finally broke through $10,000 last week and is currently changing hands for more than $11,000, it is still at a similar price level to the same period last year.
In contrast, the network’s mining difficulty rose to an all-time high two months after the halving. Compared to July last year, it is now almost twice as difficult to mine Bitcoin, while the output revenue has been cut in half.
Kevin Pan said that without a clear breakthrough in the price of Bitcoin, daily revenue for Bitcoin miners has fallen 70% from last year, although the recent jump in the price of Bitcoin has helped improve the situation.
In fact, data from Bitinfochart shows that in July 2019, Bitcoin's daily mining revenue was about $0.33 per 1TH/s of computing power. This figure has since dropped to around $0.1 per TH/s now.
Overcapacity
Meanwhile, a surge in interest and investment in bitcoin mining since last year has led to a glut of newly built mining facilities in the country.
In April, oversupply issues had already turned the hosting business from a seller’s market to a buyer’s market, with mining farms routinely offering electricity discounts of 20% compared to last year.
Kevin Pan estimates that 20% to 30% of mining facility capacity in Sichuan and Yunnan provinces remains unused during this rainy season. To be clear, Bitcoin miners and mining farms can still be profitable. But they will have to endure much longer than expected to break even on their investments.
For domestic bitcoin miners, a payback period of six months to a year is common, but if bitcoin maintains its current price of around $11,000, that period could extend to as long as two years.
Thomas Heller of F2Pool said: "In the eyes of many veteran Chinese miners, the current electricity price is not only lower than the 2016 "block reward halving" and similar situations during the hydroelectric 'flood season', but also lower than the electricity price during the 2015 bear market."
Thomas Heller said lower electricity prices may be attractive to mining companies, but it also means that mine operators will face "unprecedented investment challenges" as business turns to a buyer's market. (Baijiahao)