Cryptocurrency crash sees miner exodus from China

Mining economics have taken a turn for the worse.

According to the South China Morning Post (SCMP), many of the country's bitcoin miners are biting the bullet and selling off their machines after being unable to continue mining at a loss.

Working with the combination of bitcoin prices at US$4,500 and energy costs of US$0.06 per kW/h, it says, miners can no longer profitably operate the most popular machines, including Bitmain's widely used Antminer S9.

Around China, it seems miners are unplugging and unloading machines.

BRUTAL: this is what's happening now in a China based mining site .... 😨😨 pic.twitter.com/gcN4lVTyBt

— Dovey Wan 🦖 (@DoveyWan) November 20, 2018

Interesting times

This trends didn't just begin with the sudden drop in recent days, said Dovey Wan, who posted the above video. Wan is the co-founder of the early-stage cryptoasset fund, Primitive Ventures.

More gently falling prices have pushed smaller operations over their own thresholds one by one, and even then some continued mining at a loss. But the suddenness of the recent drop pushed a whole lot more over the threshold, including some of the bigger ones, and might have been the nail in the coffin for those mining at a loss in the hope of an eventual bitcoin upturn.

People were also mining at a loss in 2014, Wan says, but notes this time is different because of the ongoing severity of the hashrate decline.

"Some top mining pool owners were saying they were operating at loss for last 3 months which is rare since 2014," she says.

At the same time, it's not necessarily as dire as people are predicting elsewhere.

"The current "turn off price" (meaning the price point of BTC to turn off your miner) for S9 is about $3800," she says, "but will be adjusted dynamically if hash rates drop and competition becomes less fierce. At the end of the day who has better economic of scale who can survive."

Basically, as more competition drops out of the race, it gets better for those who survive. Part of the problem in China right now is that it's dry season, which means the miners who depend on hydroelectric power are facing peak energy prices for the year.

Where to?

After being pulled from their racks and carted away, mining machines generally meet one of two fates, Wan says, depending on the type of machine and the state of the market.

If they're still profitable somewhere that has even lower electricity costs than China – such as Venezuela, Russia or Ukraine – then they might be sold on to those climes in an effort to recoup some costs.

Jack Liao, operator of the Lightning Asic bitcoin mining firm, says he's bought about 50,000 pre-owned bitcoin mining rigs in the last few days, as defunct miners flood the market with the machines. More than two-thirds of the haul are Antminer S9s, bought cheap at about 500 yuan (US$72) each. They're destined for countries like Russia and Venezuela, he says, where lower energy prices mean higher mining rig prices, and they can be profitably sold.

But there's nothing one can do with the less efficient machines that aren't profitable anywhere anymore, or aren't worth shipping, and these machines are scrapped instead. These might be in the minority though.

As a result, bitcoin's declining hashrate doesn't necessarily mean too many mining machines are being permanently removed from circulation. Instead, they're being temporarily taken offline to be shipped elsewhere. Plus, the next difficulty change might see the picture improve.

F2Pool has also taken advantage of the downturn to release a new set of mining profitability estimates for different machines at US$0.06 per kW/h. According to it, the S9 break-even point is a bitcoin price of $3,733, but some of the less-intensive miners can feasibly keep turning a profit even if prices drop below $3,000.

It's also worth noting that bitcoin isn't the only major PoW coin to feel the burn right now. Litecoin is also seeing a severe drop in hashrate as its more widely-used ASIC miners hit their own ROI judgment day.

Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, XLM and BTC.

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