Whinstone CEO Chad Harris takes CNBC to visit North America’s largest bitcoin mine.
Bitcoin mining has fully recovered from the Chinese crackdown on crypto that took more than half of the world’s miners offline virtually overnight earlier this year.
Recovery is measured by looking at hashrate, a term used to describe the computing power of all miners in the bitcoin network. China has long been the epicenter of this industry, with earlier estimates indicating that 65% to 75% of the world’s bitcoin mining takes place there. But after Beijing effectively banned the country’s cryptocurrency miners in May, more than 50% of Bitcoin’s hashrate fell from the global network.
Data from Blockchain.com on Friday shows that the network has completely reduced those losses. The network’s hashrate has increased by about 113% in five months.
“Bitcoin resisted an attack by the nation-state of China effectively banning mining, and the network ignored it,” said Kevin Zhang. from digital currency company Foundry, which has helped bring more than $ 400 million in mining equipment to North America.
The upward momentum of the hashrate may bode well for the price of the world’s most popular cryptocurrency, which is down 30% from last month. China’s ban was a clear ‘buy’ signal, just as it was with Google and Facebook before it, according to Bitcoin mining engineer Brandon Arvanaghi, who now runs Meow, a company that allows for the participation of the corporate treasure in the crypto markets.
But for Arvanaghi, the biggest takeaway from this whole ordeal is the fact that bitcoin mining survived its biggest stress test to date with little drama.
“The bitcoin network withstood an attack from a large superpower and grew stronger than ever six months later. How can anyone ever say, ‘But what if the nations banned it?’ again?” he said.
The rapid recovery of Bitcoin
When half of the bitcoin network went extinct this spring, many experts said miners would come back online in North America. Numerous predictions have also been made on the schedule to restore the network to its all-time high.
No one CNBC spoke to believed the network would rebound by the end of the year.
Texas bitcoin miner and engineer Marshall Long – who is the chief architect at Rhodium Enterprises, a fully integrated bitcoin miner using liquid-cooled infrastructure – told CNBC he was a little surprised at the pace. of its recovery.
“I thought we would be here at the end of January, the beginning of February,” he said. Others thought it would take even longer than that, adding another six to twelve months to Long’s prediction.
According to Zhang, the rapid recovery of the bitcoin network is due to the fact that the United States has laid the groundwork to become a new mecca for mining. Zhang says that in the United States there is a “huge appetite for growth, failed infrastructure construction and energy exploitation. “
American companies have quietly been increasing their hosting capacity for years, betting that if the right infrastructure was in place, miners would move to the United States when the time came.
When bitcoin collapsed in late 2017 and the broader market entered a multi-year crypto winter, there had not been much demand for large bitcoin farms. American mining operators saw their openness and jumped at the chance to deploy cheap money to develop the mining ecosystem in the United States.
“Large publicly traded miners have been able to raise capital to make big purchases,” said Mike Colyer, CEO of Foundry.
Core Scientific founder Darin Feinstein agrees that there has been significant growth in mining infrastructure in America. “We have noticed a massive increase in mining operations seeking to relocate to North America, primarily the United States,” he said.
Companies like Core Scientific continued to create hosting space throughout the crypto winter to ensure the ability to plug in new equipment.
Alex Brammer of Luxor Mining, a cryptocurrency pool designed for advanced miners, points out that the maturation of capital markets and financial instruments around the mining industry has also played an important role in the rapid rise of the industry in the United States. Brammer says many US operators were able to get started quickly. expansion once they have secured funding by leveraging a multi-year history of profitability and existing capital as collateral.
The Covid also played a role.
Although the global pandemic has shut down large swathes of the economy, government stimulus funds have proven to be a boon to U.S. mining companies.
“All the printing of money during the pandemic meant that more capital had to be deployed,” Arvanaghi said.
“People were looking for places to park their money. The appetite for large-scale investments had never been greater. Much of this probably ended up in bitcoin mining operations in places. outside of China, ”Arvanaghi continued.
This bet is won. Data from the University of Cambridge shows the United States is now the number one destination for bitcoin miners, eclipsing China for the very first time.
But the picture may not be as simple as it looks.
According to several sources, many miners who did not have the resources to relocate remained behind in China, moving their operations underground. Some have gone “over the counter”, drawing their electricity directly from sources like hydroelectric dams in southern Sichuan province. Others have divided their mining operations into much smaller farms across the country that authorities were less likely to notice.
Whatever the cause of bitcoin’s faster-than-expected rebound, bitcoin miner Alejandro de la Torre – who has spent years mitting cryptos all over the world, including China and most recently in Austin, Texas. – tells CNBC that the biggest lesson here is the resilience of the global mining industry.
“I am confident that any black swan event that may arise in bitcoin mining in the future will also be a non-event,” de la Torre said.