China’s Bitcoin Ban — 5/26/21 Update: Implications for Hashrate and Miner Economics
Based on questions we have been receiving from our clients and partners, we are disseminating our latest analysis of potential scenarios resulting from China’s announcement of its planned crypto mining ban. These policy proposals could go into effect as soon as the next few weeks. See our March 1 report regarding a capital control rationale for a possible Bitcoin ban in China.
We estimate that the recent high target Hashrate of over 179 EH/s represents almost 8.5GW of power. Our estimate that China accounts for about 50%, is somewhat lower than most. This implies that about 4–4.5GW of hashpower could get displaced.
Chinese miners have large delivery volumes of the latest-gen Bitmain and MicroBT rigs scheduled over the next 18 months. Many of those rigs are intended to be delivered to China and represent multiple GW of power. This represents both new power capacity and the continued retirement of older-gen S9 class devices at existing facilities.
So what happens to the installed base in China? Three scenarios: 1. The government impounds them and takes out the hashpower permanently, 2. the miners ship them out of China and seek new mining sites, or 3. the miners sell the equipment to buyers outside China. We think scenario 1 is most likely, and that taking the rigs out of China en masse might prove challenging.
With power equipment — high tension transformers, substations, etc. — on back order, we think it is unlikely that the industry can find developed power capacity of around 4–6GW globally. At minimum, we expect the early retirement of S9-class rigs, including those outside China as newer-gen deliveries outpace power capacity growth.
Even without any rig relocations out of China, rerouting 2–3+GW worth of future shipments poses a huge challenge for the global industry. There simply isn’t the high-tension infrastructure to meet the incremental delivery schedules over the already-large US miner orderbook.
Thus, we believe that global Hashrate could track about 60EH/s below our prior projections beginning in 3Q2021. Over the next 24 months, this shortfall could slowly ease, particularly in 2023, and converge back toward our original Hash estimates.
This should also result in significant rig price declines, as many of the Chinese miners could struggle to find a delivery site. At best, we think only roughly an incremental 1.5GW of rigs could find new locations outside China.
North American miners will benefit from this new reality. They could acquire additional rigs at much lower prices, with far shorter lead times. Recently, rig prices have exceeded $100 / TH/s with 6–9 month lead times, compared to $25–35 / TH/s last summer. Prices could fall much further should the Chinese miners be allowed to relocate or sell their installed base overseas.
The pace of Hashrate growth should slow, as we noted on 5/22. This means that for the next several quarters, miners should expect to earn more Bitcoin per PH/s and per MWh of their installed capacity than we had previously modeled.
This is also a positive for hosting services, where there is a large new influx of price-insensitive customers.
On the other hand, forced liquidations and uncertainty appear to be driving increased volatility, which could persist as the Chinese mining ecosystem reconfigures itself.
Takeaways:
•Between 2–6GW of incremental mining rigs are seeking new sites outside China, depending on whether the installed base can be moved out of the country.
•Infrastructure capacity and lead times limit the incremental absorption to ~1.5GW, in our view.
•This should drive down rig prices and improve availability.
•Non-Chinese miners could experience much higher than expected BTC mining flows at lower capex.
•This is also positive for hosting services, which we believe are filling up rapidly.
