Tuesday, July 6, 2021

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.
Source
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.
Source
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%.
Source
Here is the miners' revenue graph. It went from a peak of $80.172M/day on April 15th to a trough of $13.065M/day on June 26th, 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 21st 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.


10 comments:

David. said...

The Economist covers the crackdown in Deep in rural China, bitcoin miners are packing up:

"In May, a government committee tasked with promoting financial stability vowed to put a stop to bitcoin mining. Within weeks the authorities in four main mining regions—Inner Mongolia, Sichuan, Xinjiang and Yunnan—ordered the closure of local projects. Residents of Inner Mongolia were urged to call a hotline to report anyone flouting the ban. In parts of Sichuan, miners were ordered to clear out computers and demolish buildings housing them overnight. Power suppliers pulled the plug on most of them.
...
China had accounted for about 65% of bitcoins earned through mining, according to the Cambridge Bitcoin Electricity Consumption Index. But analysts think about 90% of its mining has now ceased. Chinese miners are selling their computers at half their value.
...
China had accounted for about 65% of bitcoins earned through mining, according to the Cambridge Bitcoin Electricity Consumption Index. But analysts think about 90% of its mining has now ceased. Chinese miners are selling their computers at half their value."

David. said...

It isn't just China. Kevin Shaley's Take a look inside this underground crypto mining farm in Ukraine with its 3,800 PlayStations and 5,000 computers reports that:

"A huge underground cryptocurrency mining operation has been busted by Ukraine police for allegedly stealing electricity from the grid.

Police said they'd seized 5,000 computers and 3,800 games consoles that were being used in the illegal mine, the largest discovered in the country.

The mine, in the city of Vinnytsia, near Kyiv, stole as much as $259,300 in electricity each month, the Security Service of Ukraine said. To conceal the theft, the operators of the mine used electricity meters that did not reflect their actual energy consumption, officials said."

Check out the picture!

David. said...

Bitcoin miners break new ground in Texas, a state hailed as the new cryptocurrency capital by Dalvin Brown explains the attraction of Texas' electricity, despite unreliability and enormous price spikes:

"In the world of crypto mining, having all your computers shut down at once, and stay down for hours, as they did in June, sounds like a disaster. Crypto miners compete with one another the world over to generate the computer code that results in the production of a single bitcoin, and the algorithm that governs bitcoin’s production allows only 6.25 bitcoin to be produced every 10 minutes, among the perhaps 70,000 crypto mines that operate around the world. If you’re not able to generate the code, but your rivals can, you are out of luck.

But thanks to the way Texas power companies deal with large electricity customers like Whinstone, Harris’s bitcoin mine, one of the few owned by a publicly traded company, didn’t suffer. Instead, the state’s electricity operator, the Electric Reliability Council of Texas (ERCOT), began to pay Whinstone — for having agreed to quit buying power amid heightened demand."

The good news is that the more mining happens in the US the easier it would be for the US to stop the unstoppable code.

David. said...

Failure to proceed moonwards causes loss of interest, as Tanya Macheel reports in Cryptocurrency trading volume plunges as interest wanes following bitcoin price drop:

"Trading volumes at the largest exchanges, including Coinbase, Kraken, Binance and Bitstamp, fell more than 40% in June, according to data from crypto market data provider CryptoCompare, which cited lower prices and lower volatility as the reason for the drop.

In June the price of bitcoin hit a monthly low of $28,908, according to the report, and ended the month down 6%. A daily volume maximum of $138.2 billion on June 22 was down 42.3% from the intra-month high in May."

David. said...

MacKenzie Sigalos continues reporting on the Bitcoin mining migration in How the U.S. became the world’s new bitcoin mining hub:

"Well before China decided to kick out all of its bitcoin miners, they were already leaving in droves, and new data from Cambridge University shows they were likely headed to the United States.

The U.S. has fast become the new darling of the bitcoin mining world. It is the second-biggest mining destination on the planet, accounting for nearly 17% of all the world’s bitcoin miners as of April 2021. That’s a 151% increase from September 2020.
...
This dataset doesn’t include the mass mining exodus out of China, which led to half the world’s miners dropping offline, and experts tell CNBC that the U.S. share of the mining market is likely even bigger than the numbers indicate.

According to the newly-released Cambridge data, just before the Chinese mining ban began, the country accounted for 46% of the world’s total hashrate, an industry term used to describe the collective computing power of the bitcoin network. That’s a sharp decline from 75.5% in September 2019, and the percentage is likely much lower given the exodus underway now."

David. said...

Bloomberg reports that China’s Central Bank Says It Will Keep Pressure on Crypto Market:

"China’s central bank vowed to maintain heavy regulatory pressure on cryptocurrency trading and speculation after escalating its clampdown in the sector earlier this year.

The People’s Bank of China will also supervise financial platform companies to rectify their practices according to regulations, it said in a statement on Saturday. Policy makers met on Friday to discuss work priorities for the second half of the year."

David. said...

Bloomberg reports that China Intensifies Hunt for Cryptocurrency Miners in Hiding:

"Inspections intensified this month in several Chinese provinces, targeting illegal mining activities in colleges, research institutions and data centers, said the people who asked not to be named due to the sensitivity of the matter. Concern over the country’s power supplies for the upcoming winter season is one reason for the urgency, they said."

After halving from 180TH/s to 85TH/s the hash rate is back around 135TH/s. The "price" dropped from about $64K to about $31K but has rebounded to around $47K.

David. said...

Wolfie Zhao reports on the good times in North American Bitcoin miners see record months as they stockpile 18,000 BTC:

"the other five large bitcoin mining firms have been adding almost all of their mined bitcoin onto their balance sheets, which added up to 17,960 BTC as of August, worth around $820 million."

But David Gerard asks why this departure from the norm?

"Not selling freshly-mined coins as soon as possible is unheard-of from crypto miners in the past ten years. Sometimes miners might keep some coins back if they know a pump is coming — but not most of a billion dollars’ “worth.”

The only reason I can think of for “stockpiling” coins is that … the liquidity doesn’t exist to sell the BTC for actual dollars without crashing the price. The suckers have gone home."

This year the Bitcoin "price" has swung between $28K and $63K. Today it is around $40K, down 25% in the last two weeks. So the miners' stash is now "worth" about $110M less that Zhao's estimate. Miners may be hoping that $63K wasn't a fluke - it would make their stash "worth" about $1.13B.

But Gerard may be right that the liquidity needed isn't there in Bitcoin's thinly traded, highly manipulated market. Back in May, a single sale of 150 BTC crashed the "price" 10%". The mining rewards inflate the currency by 900 BTC/day, or 6 times the market-crashing sale. Even at $40, selling all the rewards would consume over a billion dollars a month. You might get that when BTC was heading moon-wards, but it is currently about 36% below its peak.

David. said...

Manish Singh reports that China says all cryptocurrency-related transactions are illegal and must be banned:

"China’s central bank said on Friday that all cryptocurrency-related transactions are illegal in the country and they must be banned, citing concerns around national security and “safety of people’s assets.” The world’s most populated nation also said that foreign exchanges are banned from providing services to users in the country."

This isn't the first such announcement, but the PBoC is ratcheting up the crackdown. What is significant here is the number of agencies they got to sign on:

"In a joint statement, 10 Chinese government agencies vowed to work closely to maintain a “high pressure” crackdown on trading of cryptocurrencies in the nation. The People’s Bank of China separately ordered internet, financial and payment companies from facilitating cryptocurrency trading on their platforms."

David. said...

The vise is tightening. China Bans Coinmarketcap, Coingecko And TradingView and Amid Chinese Crackdown, Alibaba Bans All Cryptocurrency Miner Sales On Its Platform
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