Graphing China's Cryptocurrency Crackdown

Below the fold an update to last Thursday's China's Cryptocurrency Crackdown with more recent graphs.

McKenzie Sigalos reports that Bitcoin mining is now easier and more profitable as algorithm adjusts after China crackdown:

China had long been the epicenter of bitcoin miners, with past estimates indicating that 65% to 75% of the world's bitcoin mining happened there, but a government-led crackdown has effectively banished the country's crypto miners.

"For the first time in the bitcoin network's history, we have a complete shutdown of mining in a targeted geographic region that affected more than 50% of the network," said Darin Feinstein, founder of Blockcap and Core Scientific.

More than 50% of the hashrate – the collective computing power of miners worldwide – has dropped off the network since its market peak in May.

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Here is the hashrate graph. It is currently 86.3TH/s, down from a peak of 180.7TH/s, so down 52.2% from the peak and trending strongly down. We may not have seen the end of the drop. This is good news for Bitcoin.

The result is that the Bitcoin system slowed down:

Typically, it takes about 10 minutes to complete a block, but Feinstein told CNBC the bitcoin network has slowed down to 14- to 19-minute block times.

And thus, as shown in the difficulty graph, the Bitcoin algorithm adjusted the difficulty:

This is precisely why bitcoin re-calibrates every 2016 blocks, or about every two weeks, resetting how tough it is for miners to mine. On Saturday, the bitcoin code automatically made it about 28% less difficult to mine – a historically unprecedented drop for the network – thereby restoring block times back to the optimal 10-minute window.

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It went from a peak of 25.046t to 19.933t, a drop of 20.4%. This is good news for Bitcoin, as Sigalos writes:

Fewer competitors and less difficulty means that any miner with a machine plugged in is going to see a significant increase in profitability and more predictable revenue.

"All bitcoin miners share in the same economics and are mining on the same network, so miners both public and private will see the uplift in revenue," said Kevin Zhang, former Chief Mining Officer at Greenridge Generation, the first major U.S. power plant to begin mining behind-the-meter at a large scale.

Assuming fixed power costs, Zhang estimates revenues of $29 per day for those using the latest-generation Bitmain miner, versus $22 per day prior to the change. Longer-term, although miner income can fluctuate with the price of the coin, Zhang also noted that mining revenues have dropped only 17% from the bitcoin price peak in April, whereas the coin's price has dropped about 50%.

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Here is the miners' revenue graph. It went from a peak of $80.172M/day on April 15^th to a trough of $13.065M/day on June 26^th, a drop of 83.7%. It has since bounced back a little, so this is good news for Bitcoin, if not quite as good as Zhang thinks. Obviously, the trough was before the decrease in difficulty, which subsequently resulted in 6.25BTC rewards happening more frequently than before and thus increased miners' revenue somewhat.

Have you noticed how important it is to check the numbers that the HODL-ers throw around?

Matt Novak reported on June 21^st that:

Miners in China are now looking to sell their equipment overseas, and it appears many have already found buyers. CNBC’s Eunice Yoon tweeted early Monday that a Chinese logistics firm was shipping 6,600 lbs (3,000 kilograms) of crypto mining equipment to an unnamed buyer in Maryland for just $9.37 per kilogram.

And Sigalos adds details:

Of all the possible destinations for this equipment, the U.S. appears to be especially well-positioned to absorb this stray hashrate. CNBC is told that major U.S. mining operators are already signing deals to patriate some of these homeless Bitmain miners.

U.S. bitcoin mining is booming, and has venture capital flowing to it, so they are poised to take advantage of the miner migration, Arvanaghi told CNBC.

"Many U.S. bitcoin miners that were funded when bitcoin's price started rising in November and December of 2020 means that they were already building out their power capacity when the China mining ban took hold," he said. "It's great timing."

And, as always, the HODL-ers ignore economies of scale and hold out hope for the little guy:

But Barbour believes that much smaller players in the residential U.S. also stand a chance at capturing these excess miners.

"I think this is a signal that in the future, bitcoin mining will be more distributed by necessity," said Barbour. "Less mega-mines like the 100+ megawatt ones we see in Texas and more small mines on small commercial and eventually residential spaces. It's much harder for a politician to shut down a mine in someone's garage."

It is good news for Bitcoin that more of the mining power is in the US where the US government could suppress it by, for example, declaring that Mining Is Money Transmission and thus that pools needed to adhere to the AML/KYC rules. Doing so would place the poor little guy in a garage in a dilemma — mine on his own and be unlikely to get a reward before their rig was obsolete, or join an illegal pool and risk their traffic being spotted.

Update:

The Malaysian government's crackdown is an example to the world. Andrew Hayward reports that Police Destroy 1,069 Bitcoin Miners With Big Ass Steamroller In Malaysia.