The behavior of crypto market participants often depends on political and economic factors: the price of crypto assets, regulations in a particular country or political events. For Chinese miners, however, the factors are somewhat different. For some years now, Chinese mining has been largely dependent on the climate. While western crypto companies fear falling stock prices and regulators, the survival of many crypto mining operations in China depends on the rain.
Chinese miners have recently migrated from the southern regions to the north, where electricity prices can go as high as $ 0.01. This migration resulted in a more than 40% increase in Bitcoin (BTC) hash rate in two days. While migration is annual, the rainy season closure may not be the only factor this year.
The “great migration of miners”
Migrating Chinese crypto miners is a common practice that is mainly influenced by the climate that determines electricity costs. Eddie Jiang, chief operating officer and partner of the ViaBTC Group mining pool, told Cointelegraph that rain falls abundantly in China’s southern provinces from April to October, resulting in an excess of hydropower and therefore cheap electricity prices.
Dejun Kenny Ge, founder of Zhongda Jinfu Finance and co-founder of Shanghai-based investment platform Dd.finance, can save miners about $ 0.18 per kilowatt (12 yuan per kilowatt) by moving from northern China to the southwestern regions. When the rainy season ends in late October in the southern regions, the price of electricity rises to around $ 0.054 / kWh. At this point, miners are moving their rigs to facilities in northwestern regions such as Xinjiang, Inner Mongolia and Qinghai, where electricity typically costs around $ 0.05 / kWh.
Low temperatures in the northern regions are another contributing factor to the relocation of Chinese miners from the south. Alejandro De La Torre, Vice President of the Crypto Mining Pool Poolin, called this process the “great migration of miners” and stated, “It is cold in northern China, so miners do not have to spend on cooling the mining equipment.”
However, not all miners adhere to this principle. To remain anonymous, a local crypto miner spoke to Cointelegraph about the matter, saying that while China has two mining centers – one in Sichuan Province (southwest China) and one in Inner Mongolia (north), Chinese miners focus more on southern skills are instructed. He also noted that many Sichuan miners are now holding onto their sites instead of moving north: “Our mining capacity in Inner Mongolia is currently only generating about 20-30% of our total hash rate.”
This time isn’t it just the climate?
Taras Kulyk, senior vice president of blockchain business development at Core Scientific, a digital asset mining infrastructure provider in North America, announced that Chinese miners have recognized that mass unit migration at any time of year is not the most sustainable model.
Some sources claim that Chinese miners are moving this year not only because of climate change, but also because of tightening regulations in the country and government pressure on crypto organizations. It was previously reported that the co-founder of the OKEx exchange was arrested by Chinese police. Ge of Zhongda Jinfu Finance found that mining operators in China were hardest hit by recent, tougher regulations:
“Due to stricter regulations, many mining facilities in Inner Mongolia that operate under national grids have been closed. Similarly, for Sichuan and Yunnan provinces, many mining facilities that use direct power from power plants have been closed. “
Since 2017, the Chinese government has increased the number of inspections on crypto farms, many of which have now been closed. As Jiang noted, every year local governments check compliance with mining power consumption. “For miners that use non-compliant power, regulators must make an adjustment until they meet the requirements.” He went on to add: “This year some local governments have used compliant electricity and mining companies can apply to use it for mining. I think this has made major strides in monitoring policy. “
Still, few local miners relate the mining shutdown to stricter regulation. In fact, changes in the mining market in China are to a greater extent linked to the inadequate production capacity of mining equipment manufacturers and the institutionalization of the industry, with funds, publicly traded companies and private equity firms gradually replacing retail miners, according to some. According to Jiang, the increased number of institutional miners is having a significant impact on the operation and maintenance requirements as well as the investment decisions of the original miners.
Will the number of miners decrease?
According to Ge, the mining market is in an era of large-scale operations, increasing specialization and financialization. Therefore, it has become a challenge for smaller mining operations to attract miners, as he told Cointelegraph: “In 2019, China was responsible for more than 70% of the global crypto mining market. “However, he added that following the bear market in 2019 and a sharp drop in prices in the first quarter of 2020, many miners have left the market with high consumption oil rigs. Overall, “sentiment in the Chinese crypto mining market remains neutral,” he said.
So far, local businesses have not seen a significant decrease in the number of large farms. Some even speak of an increase in production. De La Torre agreed that the number of farms in China and around the world has increased, adding, “The mining industry in China is not facing any major challenges at all, as we see from the global increase in hashrate in recent years and in particular can last year. “
According to Jiang, the expansion of the mining sector is again due to access from institutions that have set up larger mining operations.
Moving to other countries
While local miners claim that “everything is as usual,” some experts suggest that China could soon lose its mining dominance. Among other things, Ge highlighted the growing proportion of international mining companies and foreign institutions such as Grayscale Bitcoin Trust that are increasing their long positions in Bitcoin and Ether (ETH): “In the near future there could be an increasingly fragmented and distributed market worldwide. ”
In search of alternative terms for the placement of their mining capacities, Chinese miners are now even considering drastic measures such as relocating operations to other countries like Kazakhstan or Russia. In an interview with Cointelegraph, a crypto miner from Changzhi stated that Russia is one of the most attractive countries for Chinese miners:
“I’ve always asked myself why China is currently mining around 65% of all BTC and not Russia. I am really interested in doing business in Russia. We plan to come after the pandemic to watch the prospect of mining in Russia. In fact, many Chinese companies do. “
Other miners appear to be choosing North America, which is now becoming a viable option given its stable energy infrastructure, financial resources, and evolving regulatory clarity. Kulyk believes Chinese miners are seriously examining the prospect of diversifying operations by moving them to North America. He added that Core Scientific is currently working with several Chinese players to move some of its hardware to North America, further stating:
“One of the greatest aspects of North America as an ideal mining environment is that its energy remains stable without the material being changed over the different seasons. Above all, the regulatory policy in North America is clear and cheap compared to digital assets. “
Derek Boirun, CEO and co-founder of the peer-to-peer trading platform Realio, and Bitcoin mining pioneer Marshall Long shared the opposite view with Cointelegraph:
“Chinese miners are reluctant to move to the US to buy cheaper energy because of political instability.” Close contacts can get cheaper electricity prices in the US but are unable to start Chinese companies in the US as all regulatory measures have been taken against China recently. “
So one can hardly speak of large-scale migrations in the short term. However, local miners do not intend to leave the market en masse and it seems they have already envisaged several work scenarios to continue their business. In response to the shutdown of coal-fired power plants, Chinese miners have started connecting to hydropower plants, moving to colder regions at the end of the rainy season, and managing the rise in electricity costs by using cheaper equipment.