China’s exiled crypto machines fuel global mining boom

China’s ban on cryptocurrency mining in May has displaced miners and a global race to move millions of heavy, high-powered machines they use to solve complex puzzles and earn bitcoin.

14 of the world’s largest cryptocurrency miners moved more than 2 million devices from China in the months following the ban, according to data compiled by the Financial Times. The lion’s share of the machines was hastily transported to the United States, Canada, Kazakhstan and Russia.

Bit Digital, one of the largest listed cryptocurrency mining companies in the United States, has hired an international logistics company to extract its holdings from China and is still waiting to release a batch of nearly 1,000 machines from the docks of New York Port.

“We started migrating our fleet in March 2020, which was a great step in hindsight. When the ban was announced, we had 20,000 miners in China,” said Sam Tabar, chief strategy officer at Bit Digital. It had to abandon 372 machines in China, which “have reached the end of their useful life”.

Financial Times figures show that eight of the top 10 public giant farms based in North America have expanded the number of machines in their fleets since the Chinese ban.

Sue Innes, the company’s vice president of corporate development and investor relations, said that when the ban was imposed, Toronto-based crypto miner Hut8 was hit with offers from panicked Chinese sellers. “We were getting calls from providers that were somewhat vague and one-sided,” she said. They’ll ask us to pay $20 million with no way if it doesn’t arrive or arrives broken.” The company ended up adding 24,000 machines in June, from China’s MicroBT.

An analysis by the Luxor miner showed that “frantic liquidations” caused by the Chinese ban caused the price of Antminer S19, a model popular among industrial miners, to drop 41.7 percent from May to July.

Chinese crypto miner maker Bitmain, maker of S19, sold 30,000 machines to Marathon Digital Holdings, a Las Vegas-based mining company, in August; Terawulf, based in Maryland, bought another 30,000. The company announced in June that it would suspend sales of its devices to “help the industry transition smoothly” and reduce “significant pressure” on the market.

Outside the United States, Kazakhstan has become a leading mining center. FT data shows that the bulk of the machinery destined for Kazakhstan came from Chinese mining company Bitfufu, which shipped 80,000 machines to farms in Kazakhstan, and BIT Mining, which had shipped 7,849 machines by August.

Another beneficiary of China’s ban has been Russia, where Moscow-based infrastructure host Bit Cluster received more than 5,000 hardware devices from China in the weeks since China’s mining ban, while Russian miner BitRiver said it now hosts 1.8 million since the ban. Machines from exiled Chinese miners.

“The market focus has shifted from a lack of equipment to a lack of space to put it,” said Roman Zabuga, a spokesperson for BitRiver. Two weeks before the ban, he said, the company had to turn down a deal with a Chinese customer looking to offload another million devices.

According to Jaran Mellerud, Research Analyst at Arcane Crypto, at least 700,000 Chinese devices have not restarted after the ban and are likely to be in storage. Since many of these devices are of an older generation, such as the Antminer S9, it is less cost-effective to ship them to locations like the US. In July, the price of the S9 dropped to just $367.

A man writes on a computer surrounded by mining equipment
Cryptocurrency mining companies face competition from locals who are building their own rigs © Andrey Rudakov / Bloomberg

This has led to the proliferation of old generating machines in less established mining locations such as Venezuela or Paraguay, where there is less regulatory stability but electricity prices are cheap.

Juan Jose Pinto, co-founder of Doctor Miner, a mining company in Caracas, said the Chinese ban was a “great opportunity”. “We have been approached by three different Chinese miners so far to host about 7,000 machines,” he said. “If we had the resources, we could host more.”

Pinto said his company pays about $0.01 per kilowatt-hour for electricity, which means it can use older, more energy-intensive machines like the Antminer S9s. Although these machines are rickety and more prone to failures, Pinto and his team have found innovative ways to keep them running.

“We have what we call a ‘cemetery,’ where we put miners who don’t work, but who have parts of it,” Pinto said. “If I have one machine with four broken parts and another machine with six broken parts, I standardize them and hope to build a good miner.”

Digital Assets, a company based in Asuncion, is preparing to host 15,500 miners in the coming months, but it faces competition from some local Paraguayans who have started buying machines and mining independently.

Due to the exhausted economy in Venezuela, cryptocurrency mining is a way for local residents to increase their profits. “People mine their homes with just one machine,” Pinto said. “In other countries, there are a few big farm owners, and there are thousands of people who own small farms. Making an extra $100 a month makes a big difference for them.”

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