Recent investments into cryptocurrency mining equipment by smaller players could be a positive signal for the longevity and value of Bitcoin (BTC). In late June, United States-based blockchain firm Core Scientific ordered over 17,000 of the latest Bitcoin mining ASIC machines from Chinese hardware producer Bitmain. The news made waves in the industry as the largest known order of Antminer S19s by a single operator.
Core Scientific will use some of the machines for its own operations while the rest will be used for its cloud-based mining services for clients. Furthermore, one of its major clients, Horizon Kinetics, has increased its investment with Core Scientific in order to access the new mining equipment from Bitmain.
The news is the latest in a string of investments and developments of major mining operations outside of China, which has long been considered the hub of the global Bitcoin mining ecosystem for over half a decade. Major investments by smaller firms looking to increase their footprints in the mining space not only create positive sentiment for the industry but also show that smaller players are actively looking to get involved in a space that has been dominated by bigger companies.
Halving means efficiency
Investments into cryptocurrency mining equipment by smaller industry participants suggest that there is growing confidence in the sector. Despite the fact that the Bitcoin mining reward went through its most recent halving event, operators seem to be playing the long game, indicating an optimistic outlook for the industry.
Cryptox spoke to Jason Deane, an analyst for financial analysis and advisory firm Quantum Economics, who has hands-on experience in the mining industry. The investment into miners made by Core Scientific illustrates the optimism in the sector, according to Deane. “They clearly feel this, or they wouldn’t do it,” he said. Additionally, Deane believes the equation is quite simple when one looks at the numbers:
“Mining is a business that is absolute in the key numbers, so it’s simply a question of assessing profitability on an ongoing basis. While difficulty and hashrate are variable and closely related, we can assume that both will increase over time. If the Bitcoin price rises significantly, we can also be quite confident that they will rise much faster. It all comes down to cost and protecting position — if you can secure power that ensures your breakeven is very low, say $6,000 or less per Bitcoin, then you have good insurance against whatever comes next.”
It is also important to consider the price of the latest mining equipment to understand the implications of major investments in a large-scale operation. A new Antminer S19 retails for $1,785 on Bitmain’s website. If Core Scientific bought its miners at that price, that figure alone would be around $30 million for 17,000 units.
Nevertheless, Deane is not surprised by the value of investments into the newest mining hardware, even after the latest halving, and suggested that some miners could operate profitably up until the next halving, which is due to take place in 2024: “The feeling going forward is broadly bullish and there are no more adjustments for four years,” adding that the “current equipment, purchased so early in this halving cycle, has a good chance of getting a good ROI and may even be good for the whole period.”
Johnson Xu, head of research and chief analyst at TokenInsight, told Cryptox that a number of firms with access to capital had been preparing to invest in mining equipment before the halving. The move was spurred by the opportunity to increase operational efficiency by selling older equipment for new machines:
“I think the Antminer S19 deliveries happening straight post-halving is another contributing factor towards recent massive investments into mining equipment. The S19, among others, is one of the latest SHA-256 mining ASICs on the market, thus plenty of buyers are willing to acquire the latest generation machines in order to upgrade their existing operations or purely for the purpose of opening a new mining farm.”
In an opinion piece previously published by Cryptox, Xu examined the hash rate decline of Bitcoin following the halving event and suggested that it could have positive effects on the ecosystem. He backed up those sentiments in his latest correspondence, highlighting the prime opportunity for those miners who haven’t done so yet to upgrade hardware, adding: “For those miners who cannot lower their electricity expenses, upgrading to the most efficient miners is the best strategy for longer-term profitability.”
Simon Peters, a market analyst for eToro, also gave some insight into the recent surge of investments in mining hardware in the shadow of Bitcoin’s halving in May. Peters believes that the current situation of the market further incentivizes operators to become efficient and plan ahead:
“There is even greater incentive for miners to become more efficient. Miners must find ways to decrease overheads and stay profitable, even if it means investing greater capital at this moment to become more efficient in the future.”
Major investments a boon for Bitcoin’s longevity
The lead up to Bitcoin’s latest reward halving was awash with wide-ranging predictions on the impact it would have on the price of the preeminent cryptocurrency as well as its effects on the mining ecosystem.
There was an immediate impact on the Bitcoin mining difficulty in the days after the halving event, but the overall sentiment was that the halving did not have an overly negative effect on the Bitcoin ecosystem. Any major investment into a particular industry or business is bound to instill positive sentiment for the future, and Deane believes it illustrates a changing sentiment toward Bitcoin:
“I’d consider it a positive endorsement of the industry as a whole and a demonstration of the belief in the longevity of Bitcoin itself. We’re leaving the days of Bitcoin being experimental or ’only for geeks’ behind and moving into a new era of professionalism and application. It makes perfect sense that this level of investment is happening now.”
That sentiment, according to Xu, is evident in the strong inflow of capital into the mining sector due to the perception of Bitcoin mining being a major component of the cryptocurrency ecosystem: “Although the mining ecosystem can still be considered as opaque, lacking sufficient data and information, we have seen many industry participants working together to bring transparency to the sector.”
Peters also argued that these recent events could also strengthen the Bitcoin mining ecosystem by making it more efficient, as “only the strongest and most efficient mining operations will survive,” but he also provided a potential downside in that regard: “On the flip side, there is now a greater fear around centralisation of hashpower and that too much of the network’s hashrate is being controlled by only a few mining pools.”
Peters raised another interesting byproduct of investment by smaller operations: mining power moving away from China. The country has long been the geographical home to miners accountable for a large portion of the Bitcoin hash rate. Peters offered three potential reasons for this:
“Greater appetite from venture capitalists to invest in crypto from these countries; more favourable conditions to run a mining operation both in terms of cooler climates and access to renewable energy; and lastly, existing mining operations from China expanding into other countries to hedge their risks.”
