Bitcoin mining in China and rising hash rate despite sideways trend

Stagnant Bitcoin courses are causing long-term problems for miners. Sales have been falling continuously for quite some time. Nevertheless, since the beginning of the year, the hash rate has increased again visibly. The reasons for this are diverse.

It’s a constant up and down in bitcoin mining. Falling prices lead to profit losses for the miners. So you switch off devices to save power. Usually, devices of older ASIC generations first go offline.

This in turn finds outflow in the difficulty retargeting algorithm. Finally, the network participants recalculate the difficulty level every 2.016 blocks (approximately every two weeks). This reduces the need to find new blocks. The result: Mining is worthwhile again. At least theoretically.

In practice, it is found that the Bitcoin price has more impact on the profits of the miners than is desirable. In other words, it is difficult to explain that Bitcoin Mining revenues have fallen steadily since December 2017. At bull-run weddings – the older ones may remember – miners could generate more revenue with transaction fees than Coinbase Reward and Fees together these days. In figures: In December 2017, the entire industry earned a whopping $ 1.2 billion by mining Bitcoin.

In February 2019, the same could take only about 200 million US dollars. The sales correlate strongly with the Bitcoin price. This is clear from Diar’s latest analysis.

Hash rate increases again

However, there is no reason to worry. Despite the poor market situation, at least the hash rate has found its bottom. Since the end of December last year, the accumulated computing power in the Bitcoin network has visibly increased.

Since the price so far could make no significant leaps, one can only speculate on the reasons of the increase. One possible explanation might be approaching Coinbase Reward Halving in May 2020. In the past, the Bitcoin price could often consolidate well in advance – such an expectation could have prompted miners to get more machines online again.
Farms hit second-hand market

Furthermore, the farms are likely to have aggressively invested in ASICs. Speaking to CoinDesk, Xun Zheng, CEO of mining giant Hashage, said AntMiner S9 is currently cheap on the second-hand market. And indeed: On the e-commerce platform Alibaba you will find S9 Miner for the price of 100 to 200 US dollars.

The investments by the miners, so Zheng, are explained primarily by expected falling electricity costs in China. In the Middle Kingdom, energy prices are much lower during the summer months. After all, it is raining heavily at this time in the mountainous provinces of Sichuan and Yunnan. The surplus water could then be used for the favorable production of electricity in the hydroelectric power plants in the regions.

As a result, the farms can conclude favorable lump-sum contracts with the power generators in advance and thus act profitably again.

Nevertheless, the profit margins of the miners were rarely lower than these days. Sooner or later, the courses should pick up again. Otherwise, the investments will fizzle out.