Why is Bitcoin mining flourishing in North America, and where does that lead?
The collateral effects of China’s mining ban keep positively affecting Bitcoin mining operations in the United States and Canada.
One country’s trash, another country’s treasure
It’s been a little over two months since China banned all crypto mining activities, causing an unprecedented migration of hashrate out of the region. Back then, when it was still uncertain where all those miners would settle down, the crypto community was already warning that this was a huge mistake — a trillion-dollar mistake, to be more specific.
Fast forward to today. The mining landscape is taking a new shape, and the United States and Canada seem to be more in the center of it with each passing day. Let’s dive into the matter and analyze why Bitcoin mining has blossomed in North America. And, more importantly, why it’s more profitable than ever.
Hashrate and difficulty
If you understand how these metrics work, then this is a no-brainer to you. In June, we estimated that more than 50% of Bitcoin’s global hashrate was concentrated in China. When the ban took effect, all those miners abruptly disconnected from the network, leading to a significant drop.
Mining difficulty is adjusted roughly every two weeks, depending on the network’s total hashrate. So after Chinese miners migrated out of the country, Bitcoin saw its largest difficulty adjustment in history.
Of course, the big winners in that scenario were the miners still connected to the Bitcoin network. Suddenly, Bitcoin became significantly less competitive, and thus, easier to mine. Large mining companies in the US and Canada saw their profits surge without expanding their operation — although some of them doubled down and did it.
The whole situation escalates the longer it takes for hashrate and mining difficulty to recover. We’ll most likely start seeing miners reconnecting to the network gradually. As a consequence, the difficulty will follow. Nevertheless, as long as Bitcoin’s price goes up at the same rate or even faster, miners will keep enjoying high profitability periods.
Friendly regulations and cheap electricity
It is no secret that many states are looking to become the next tech hub in the continent, and they’re counting on catching the eye of Bitcoin miners to do so. This isn’t something recent, either. Several federal governments from the United States have been developing legal frameworks and regulations around cryptocurrency for years.
Wyoming, for example, passed a bill in 2018 that defined what utility tokens are. Since then, another seven pro-crypto bills came out, providing both crypto-centered investors and institutions with several benefits. Among them are granting digital currencies the same legal status as money, authorizing banks to hold digital assets in custody, or allowing corporations to tokenize their shares.
Another relevant case is Texas, not because of its friendly regulations but its deregulated energy market. Electricity prices in the Lone Star State are among the lowest in the country, especially for industrial facilities, and it incentivizes the use of renewable energy. This gives a significant advantage for Bitcoin miners settled within its territory and opens up a new range of opportunities to rebalance the power grid and solve a decades-long problem for the state.
This is also true for Canada, which relies on renewable sources to produce a significant 68.5% of its total energy. Although in this case, hydroelectric power is the most common. Some provinces, like British Columbia or Quebec, are 90% powered by hydroelectric plants.
Whether they are friendly regulations or cheap, clean electricity — sometimes, even both — , North America provides more than enough benefits for miners looking for an apt location to settle down.
Rising institutional interest in cryptocurrency
One of the main differences between this last bull cycle and the one from 2017 was the considerable institutional interest. From payment services companies like PayPal to the electric car company Tesla, several organizations have seen the true value of Bitcoin, adding it to their balance sheet.
Investment companies and portfolio managers have also gotten involved, flooding the SEC’s inbox with Bitcoin and Ethereum ETF filings. Generally, rising interest in Bitcoin often falls into mining, too.
This unprecedented capital inflow into cryptocurrency shot prices to new all-time highs and enabled the growth of the mining industry and its infrastructure. While benefiting from an unusual profitability period, publicly-traded mining companies in North America also capitalized on this situation. Seven Bitcoin mining stocks were among the best performing securities in early August, with six of them having active mining facilities either in the United States or Canada.
The future of Bitcoin mining
In the last month, Bitcoin mining companies in North America have reported productivity increases of up to 82%. This boosts their profits, but it also attracts more investors into the industry. Different factors seem to have coincided to make North America the new mining capital of the world. And from how the mining landscape has reorganized after the Chinese miner migration so far, it’s hard to imagine a different outcome.
Of course, this has its pros and cons. The available infrastructure in the United States and Canada enables miners to become more efficient. Additionally, by moving away from China’s coal power plants and taking advantage of these countries’ renewable energy production, we can expect mining to become more environmentally friendly than ever before. This is always good news, as energy usage and the environmental impact of mining are common topics among Bitcoin critics.
On the other hand, it’s still to be seen what will happen with President Biden’s infrastructure bill, which includes unclear language regarding cryptocurrency that could hit the industry and its investment. In addition, many states are still in a regulatory limbo regarding crypto. Whether they take a negative or a positive stance remains to be seen.
Finally, we mustn’t trip on the same stone twice. China used to host more than half the global hashrate, and in the blink of an eye, all those miners had to find a new home. Even if it doesn’t reach that level this time, the concentration of hashpower in geographical areas always poses a risk for the network, regardless of where that is. And it is of vital importance that we are prepared for this kind of event.
That is why we’re building the Lumerin Protocol. A decentralized, peer-to-peer network for hashrate rerouting. With it, users will have the possibility of buying and controlling hashpower remotely from anywhere in the world.
Titan is actively working to optimize mining and make proof-of-work cryptocurrencies more accessible and democratic. If you liked this story, make sure to subscribe to our blog and sign up for our weekly newsletter. You can also visit our social media through the links below. We’ll be glad to have you!
