China’s exiled crypto machines fuel global mining boom

China’s ban on cryptocurrency mining in May triggered an exodus of miners and a global race to relocate millions of the clunky, power intensive machines they use to solve complex puzzles and earn bitcoin.

Fourteen of the biggest crypto mining companies in the world have moved more than 2m machines out of China in the months following the ban, according to data gathered by the Financial Times. The lion’s share of machines was hastily moved to the US, Canada, Kazakhstan and Russia.

Bit Digital, one of the largest US-listed crypto mining companies, hired an international logistics firm to extract its property from China and is still waiting for a batch of almost 1,000 machines to be released from the docks at the Port of New York.

“We started our fleet migration in March 2020, which in hindsight was a great move. When the ban was announced we had 20,000 miners in China,” said Sam Tabar, chief strategy officer of Bit Digital. Still, the company said it had to abandon 372 machines in China, which had “reached the end of their useful lives”.

Eight out of the 10 largest public mega farms based in North America have expanded the number of machines in their fleets since China’s ban, the FT’s figures show.

When the ban hit, Toronto crypto mining company Hut8 was bombarded with offers from panicked Chinese sellers, said Sue Ennis, the company’s VP of corporate development and investor relations. “We were getting calls from providers which were pretty opaque and one-sided,” she said. “They would ask us to pay $20m with no recourse if it does not arrive or arrives broken.” The company ended up adding 24,000 machines in June, from Chinese company MicroBT.

The “frenzied liquidations” triggered by China’s ban caused the price of an Antminer S19, a popular model among industrial miners, to fall by 41.7 per cent from May to July, analysis by mining company Luxor mining showed.

Chinese crypto mining machine manufacturer Bitmain, the maker of the S19, had sold 30,000 machines to Marathon Digital Holdings, a mining company based in Las Vegas, in August; while Maryland based Terawulf bought another 30,000. The company announced in June that it was suspending sales of its machines to “help the industry transition smoothly” and reduce the “great pressure” on the market.

Outside the US, Kazakhstan has become a leading mining centre. FT data show the bulk of the machines going to Kazahstan came from Chinese mining company Bitfufu, which shipped 80,000 machines to farms in Kazakhstan, and BIT Mining, which shipped 7,849 machines by August.

Another beneficiary of China’s ban was Russia, where in the weeks following China’s cryptocurrency mining ban, Moscow-based infrastructure hosting company Bit Cluster received over 5,000 machines from China, while Russian crypto mining company BitRiver said that since the ban it is now hosting 1.8m machines from exiled Chinese miners.

“The focus of the market has shifted from a lack of equipment to a lack of space for its placement,” said Roman Zabuga, a spokesperson for BitRiver. A couple of weeks before the ban, the company had to turn down a deal with a Chinese client looking to offload another million machines, he said.

According to Jaran Mellerud, a research analyst at Arcane Crypto, just under 700,000 Chinese machines have not been turned back on after the ban and are likely to be sitting in storage. Since many of these are older generation machines, like the Antminer S9, it is less cost effective to ship them to locations such as the United States. In July, the price of an S9 dipped to just $367.

Man types on a computer surrounded by cryptomining equipment
Crypto mining companies are facing competition from local people building their own rigs © Andrey Rudakov/Bloomberg

This has led to older generation machines being scattered to less established mining locations such as Venezuela or Paraguay, where there is less regulatory stability but cheap electricity prices.

Juan Jose Pinto, co-founder of Doctor Miner, a mining company in Caracas, said the Chinese ban “is a great opportunity”. “We’ve been contacted by three different big Chinese miners so far to host around 7,000 machines,” he said. “If we had the resources we could host a lot more.”

Pinto said his company pays around $0.01 per kWh for electricity, meaning that it can effectively use older, more power hungry machinery like Antminer S9s. Although these machines are rickety and more prone to breakdowns, Pinto and his team have found imaginative ways to keep them in operation.

“We have what we call ‘the cemetery’, where we put miners that aren’t working, but have parts which are,” said Pinto. “If I have one machine with four broken parts and another machine with six broken parts, I unite them and hopefully build one good miner.” 

Digital Assets, a company based in Asunción, is preparing to host 15,500 miners in the coming months but faces competition from some Paraguayan locals who have started to buy machines and mine independently.

And owing to Venezuela’s battered economy, mining cryptocurrency is a way for locals to top up their earnings. “People mine in their houses with just one machine,” said Pinto. “In other countries, there are a few big guys with farms, here there are thousands of people with small farms. Making $100 extra per month makes a huge difference for them.”

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