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Impact of China’s Bitcoin Mining Ban

Over the past several days the most common question received by those of us in the mining business is, “how long until the Chinese miners are back online?”

After thinking about this at length and digesting comments from others, I estimate that it will take 12–18 months for most of the capacity to come back online; however, some of it may never come back online. My reasoning is as follows.

To start, the scale of energy needed is tremendous. If all of the Chinese mining capacity were to come to North America, it would essentially triple current NA mining. It has taken 12 years to reach the current capacity, so tripling the capacity will not happen quickly.

Those of us in the mining business here in NA were already working aggressively to expand before the ban. We have poured massive resources into securing new energy sources these past several months and it has been hard. All of the grid power that is easy to get, or even just somewhat difficult to get, is already secured. Off-grid energy sources are available, but each off-grid site requires three deals; one for access to the raw energy, one for electrical generation equipment, and one for ASICs — orchestrating all of this takes massive time and effort. Whether the new projects being pursued are on-grid, off-grid or mixed, most of them included ordering current or next generation equipment that will run with this power too. This is because the project’s shareholders want their investment in the new power source and infrastructure to run for the maximum possible duration. They will not be particularly interested in buying the used equipment from China, or just hosting for them.

To the degree that some power is available — it might be in less “friendly” regions, and this is crucial because power is not created equally. Or, said another way, a kWh of electricity in California isn’t fungible with a kWh in South Dakota. Given that the Chinese miners just got kicked out of their own country, I expect they will be cautious about where they go. Ideally, the Chinese miners, like my company, will desire finding homes in friendly jurisdictions inside the US (ex. TX, ND, OK, FL) but unfortunately, in the short-term, that power is largely taken.

This will leave Chinese miners with two options. Option one, go to countries that are welcoming but often perceived as less stable. These are places like Georgia (country), Kazakhstan, El Salvador, Paraguay. Option two, start looking at off-grid or blended off-grid/on-grid solutions in NA (ex. stranded gas, flared gas, solar). Option one will be a bit quicker and have lower capital costs but is riskier and, ultimately, there will not be enough power to go around in the desired timeframe. Option two will have a longer lead-time and be more capital intensive, but safer and have lower long-term operating costs. Additionally, Option two can meet the total energy needs of the Chinese miners but in a more fragmented manner and this is a foreign business model for them. The Chinese miners are used to deploying in large facilities (fixed warehouses) with tens of MWs managed at a single site. The future of off-grid mining is using flexible, mobile, container solutions deployed in about 1 MW increments.

Regardless of where the Chinese miners go, it will make sense that they will deploy their latest ASICs first and their oldest ones last. The same is true if they try to sell their ASICs as the market for large amounts of older technology is going to be limited. (more on this later) This is because if there is a limit on the available power then it is only logical that they would want to use the most efficient technology with that power. As a point of reference, Barefoot Mining’s most recent project was funded over the past month and will run at about 3MW. It will come online in late Q4 ’21 or early Q1 ’22. Part of this schedule is due to the availability of the particular ASICs we are using. We could pull this forward a few months with different ASICs, but the long-term pro forma of using other equipment just doesn’t look as attractive.

So, it is possible that some of the older technology from China (ex. S9s) may not ever make back into production, especially if there is a 12-to-18-month delay in getting most of the capacity back online. The next halving is coming in H1 2024. This means the likely remaining window for operating this equipment profitably will be close to zero. Moving this equipment to the US comes with a large expense. This may well lead to S9s, and similar older equipment, being on a fire sale shortly. Note, that it was only 8 months ago that that this equipment was selling for $25 per unit. I expect that we’ll see a rapid decline in the price of this type of equipment over the next 90 days as the Chinese miners face the reality/difficulty of their situation and try to liquidate older equipment.

I do wish the Chinese miners well even though they could be positioned as competitors to my companies. I think the health of the Bitcoin ecosystem is always our top priority. Plus, I believe the ultimate redeployment of the Chinese mining resources is going be accomplished by being scattered all over the world and often through the use of off-grid and boutique-sized sites. This will make Bitcoin more decentralized and more unstoppable than ever before.

h/t to @AusStorms @Max_Gagliardi @CBSpears and others who joined the Twitter Spaces session on Off-Grid Mining on the morning of June 28, 2021. Special thanks to @MartyBent and @GAMdotAI who hosted the session, contributed greatly and allowed me to voice my opinion and thoughts.

Bob Burnett
CEO, Barefoot Mining
June 28, 2021

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Bob Burnett

Bitcoin Evangelist, CEO of Barefoot Mining and former CTO of Gateway Inc.