Long 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 for the US.
The US has quickly become the new darling of the Bitcoin mining world. It is the second largest mining destination in the world and represented almost 17% of all bitcoin miners in the world as of April 2021. That’s an increase of 151% compared to September 2020.
“In the past 18 months we have seen strong growth in mining infrastructure in the United States,” said Darin Feinstein, founder of Blockcap and Core Scientific. “We have seen a massive increase in mining operations looking to relocate to North America, mainly the US.”
That dataset doesn’t include the mass mining exodus from China, which resulted in half of the world’s miners going offline, and experts tell CNBC that the U.S. share of the mining market is likely even larger than the numbers suggest.
According to the newly released Cambridge data, just before China’s 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 drop from 75.5% in September 2019, and the percentage is likely much lower given the current exodus.
“500,000 formerly Chinese miner rigs are looking for a home in the USA,” said Fred Thiel from Marathon Digital. “If deployed, it would mean North America would have closer to 40% of the world’s hashrate by the end of 2022.”
The new mining mecca
America’s growing dominance is a simple stroke of luck preparing for meetings. The USA has been quietly expanding its hosting capacities for years.
Before Bitcoin miners actually came to America, companies across the country were gambling that, if adequate infrastructure existed, they would eventually settle in the United States
This gamble seems to be paying off.
When bitcoin crashed in late 2017 and the broader market entered a multi-year crypto winter, there wasn’t much demand for large bitcoin farms. US mining operators saw their opening and took the chance to use cheap money to build the mining ecosystem in the states.
“The big public miners were able to raise capital to make big purchases,” said Mike Colyer, CEO of Foundry digital currency company, which helped bring over $ 300 million worth of mining equipment to North America.
According to Colyer, companies like North American crypto mining operator Core Scientific built hosting spaces throughout the crypto winter so they could plug in new equipment.
“Much of the new equipment manufactured from May 2020 to December 2020 was shipped to the US and Canada,” he said.
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Alex Brammer of Luxor Mining, a cryptocurrency pool designed for advanced miners, points out that the maturing capital markets and financial instruments surrounding the mining industry also played a large role in the industry’s rapid rise in the U.S. Brammer says many of these American operators were able to expand rapidly once they secured funding through the use of a multi-year track record and existing capital as collateral.
Covid also played a role.
Although the global pandemic crippled large parts of the economy, the stimulus payments that followed proved a boon for US mining companies.
“All the money printing during the pandemic meant more capital had to be put in,” explained Bitcoin mining engineer Brandon Arvanaghi.
“People were looking for places to park their money. The appetite for big investments has never been so great. Much of it likely found its way into Bitcoin mining operations outside of China, ”Arvanaghi continued.
Do it in America
According to Colyer, the seeds of US migration began in early 2020. Before Beijing’s sudden move, China’s mining dominance had already begun to slide.
Part of the appeal is that the US meet many criteria for these immigrant miners.
“If you want to move hundreds of millions of dollars of miners out of China, you want to make sure you have geographic, political, and judicial stability. You also want to make sure it is for the assets that you are moving, ”Feinstein said.
It also helps that the US is also home to some of the cheapest energy sources in the world, many of which are typically renewable. As miners compete on a large scale in a low margin industry where their only variable cost is usually energy, they are encouraged to migrate to the cheapest energy sources in the world.
Thiel believes that most new miners moving to North America will be powered by renewable energy, or gas, which is offset by renewable energy credits.
While Castle Island Ventures founding partner Nic Carter points out that U.S. mining isn’t entirely renewable, he says the miners here are much better at picking renewable energy and buying offsets.
“Migration is definitely a net positive overall,” he said. “Moving the hashrate to the US, Canada and Russia will mean much lower CO2 intensity.”