1 Million Mining Machines in Sichuan Will Run Again in May, Bitcoin Hashrate Boom?

“Large amount of bitcoin mining machines shut down during Sichuan’s dry season will start running again in the upcoming wet season. The number is expected to reach 1 million.” A miner named Xu Feng said.

Xu has been a mining farm operator for over 5 years in Sichuan. Last October, Xu shut down his mining operations and sold all his S9 miners as a result of the continuing slump in bitcoin price and the brutal fact that hydroelectricity costs were forced up by the dry season there.

Though still two months to go, the raining season starting in May has been attracting miners since the very start of 2019. Xu said the hosting facility in his mines including those still under construction has been fully booked.

More and more people have been joining bitcoin mining these years, according to Xu. The seasoned miner runs six mines in Sichuan, of which three are under construction with over 10 million yuan ($1.5 million) upfront costs invested. Once they are finished, his six mining farms could host 100K S9 miners.

“Don’t expect to make money this year, wait until bitcoin halving occurs next year.” Xu pins his hope on the bitcoin block reward halving in 2020, believing it could boost bitcoin price.

Bitcoin block reward is halved every four years. On Jan. 3, 2009, 50 bitcoins were rewarded to miners when a block was generated, the first and the second halving happened in Nov.28, 2012, Jul.10, 2016, respectively. Miners are currently earning 12.5 bitcoins per block, the third halving set in 2020 will reduce the block reward to 6.25 bitcoins.

According to historical data, after the 2012 bitcoin halving, it took the market two months to start feeling the impact of the inflation halving – bitcoin price spiked from $12 to $142. After the 2016 halving the market felt the inflation reduction sooner – bitcoin started a rally that brings it from $582 to $20,000 just one month after the halving event.

That explains why miners like Xu are willing to bear losses in short term for the future value of bitcoin they firmly believe.

A majority of bitcoin mines are located in Sichuan, Guizhou, Yunnan, Xinjiang and Inner Mongolia due to a large amount of power redundancy in these places. Sichuan features its abundant and cheap hydropower, while Xinjiang and Inner Mongolia boast their thermal power.

Hydropower has the advantage over thermal electricity for being much cheaper by using redundant natural wind power and waterpower, but hydroelectricity cannot be promised throughout the entire year, especially in dry seasons (usually from November to April). According to Xu, what you can earn during the wet season almost equals a whole year’s earning with low water.

What seems only a cent difference in electricity costs would actually lead to a huge expense. “Suppose I have 10,000 units of mining machines in operation, if the electricity cost charges 0.1 yuan more, 0.1 yuan/kWh*24h/day*10,000 units*30d/month=720,000 yuan, you have to pay an extra 720,000 yuan (roughly $108k) every month in electricity.”

That’s why miners are scratching their heads to hunt for cheap electricity, moving from high electricity cost areas towards lower cost areas. According to F2Pool founder, the electricity costs in China are between 0.26 yuan and 0.38yuan ($0.04-$0.06) per kilowatt. While the hydroelectricity in Sichuan during the period of high water is only 0.1 yuan.

The relocation will be completed soon in one week, but it could lead to a 20% loss including labor fees and damages to mining machines in the process. 500,000 units of mining rigs moved from Xinjiang to Sichuan would cost 15 million yuan ($2.5 million) in relocation, which is unbearable for small mines.

The dry season in Sichuan last year has resulted in bitcoin hashrate drop by almost half from a record high of 60.4E (on Nov.1, 2018) to a low of 33E (on Dec.9, 2018), reversing to the level last seen last July. The turnaround marks a rare occurrence for the network, which has gotten used to the gradual increase in hashing power. Will the restarted bitcoin mining rigs in the coming May help boost the sluggish hashrate, or even the bitcoin price? Leave your comment below.

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