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Chinese Bitcoin Miners: Price Crashed, and I Didn’t Leave

Bitcoin price’s latest crash seems to have cast a shadow over the mining sector which saw the hashrate of bitcoin network dropped to a low of 85 EH/s from a peak of 133 EH/s on March 5.

The current prices might be too low for some mining operations, which caused a small exodus of miners to leave the network. While most Chinese miners, running their machines in the southwest and northwest China, are still holding on there.

To the outside world, a reshuffle of the bitcoin mining sector appears to be underway, but shutdowns and exits are not the full picture. In the frontier regions of southwest and northwest China that remain almost unaffected by the coronavirus outbreak, the majority of bitcoin mining farms there are under normal operation, such as those that have early completed equipment upgrades and are profitable even at today’s dismal prices.

Of course, there are a lot of players on the verge of losing money but they still hold on there. A miner explained why he kept his machines working around the clock in face of losses,

“It is stipulated in the agreement that you’ll pay a fine for shutting down, and electricity price will be charged higher if the number of running machines after shutdown is not up to the agreed standard.”

Amid the slump, some have been able to stay out of the picture. A miner going by the name of Liu Wu, currently mining in Iran where electricity is extremely cheap, told us that the coronavirus pandemic and bitcoin price plunge had not affected them at all.

Iran is one of the hardest-hit countries worldwide by COVID-19, with more than 20,000 confirmed cases so far. Since the outbreak is mainly concentrated in the north of the country, and the central and southern Iran where Liu’s mines are located have reported no infections, his mining farm has so far not been affected. With the extremely cheap electricity they get – costing less than 0.1 RMB ($0.014) per kWh, miners there like Liu don’t have to worry about shutdown at all even if the price of BTC drops to $3,600.

Why some leave?

When looking back on the crash, most of the miners and analysts we asked pointed to crypto lending and high leverage. In the past few years, it has become an option for financially-strapped miners to get cash to cover their daily expenses or to expand mining operations by using crypto as collateral without selling any.

If bitcoin price continues to go up, everyone will be satisfied; once the market suffers steep drops, the crypto collateral will hit the price line of the platform in a short time, and the lender system will forcibly dispose of the collateral and automatically sell it, which will further intensify the market selling pressure.

In early March this year, Babel Finance, one of the leading cryptocurrency lending firms in China, reported a record of $380 million in outstanding loans as of February, of which nearly half was lent to miners; another leading crypto lending firm, Bitmain’s spinoff Matrixport, reported its outstanding loans at $100 million as of February. The loan size and effect of this market is huge.

Is there any hope?

If the price of bitcoin remains the same when the halving occurs, the mining earnings will be reduced by half and mining machines with electricity ratio of over 50% will have to shut down in theory. With more than a month to go before the halving, the profitability of bitcoin mining has fallen to a relatively low range. Many miners think there’s still no sign of recovery from the downturn despite the recent $1,000 one-day gain in bitcoin price and that the shakeout in the mining industry will continue.

However, unlike the previous two halvings in November 2012 and July 2016, respectively, the third bitcoin reward halving will come along with the rainy season in Sichuan. Possibly, it will be a turning point for the mining sector.

Some big mines have already been gearing up for the coming rainy season, and advertisements for “hosting” and “cheap electricity” are everywhere in miner groups on various social media platforms.

“Electricity rates this year is expected to be cheaper than that of previous years,” said miner Zhang Zhenyu, “even so, mining business does not seem optimistic.” According to him, many mines under construction have been largely suspended due to the outbreak and price slump, and major mining hardware makers have not shipped much. “The mines that have completed the equipment updates are likely to be the winners,” he said. There are, of course, bold miners betting on the next two months, who are stocking up or reselling machines these days.

Starting in the second half of last year, many mines have begun to upgrade their machines and basically completed their upgrades before the slump. And those who are able to mine overseas, with rich resources on hand, are considering expanding their scale or not even if bitcoin price dropped below $4000.

After more than a week of correction, bitcoin has now bounced back around $6,000, a far cry from the price the halving effect is expected to bring, but a rise is always a good thing.

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