Over the past two weeks it’s estimated that between 600,000 and 800,000 miners in China have ceased operation according to Mao Shixing, founder of F2Pool.
Bitcoin’s network hashrate (the aggregated computing power dedicated to mining Bitcoin) has declined a whopping 13% over the past week, a near 47 million tera hashes per second (TH/s) according to Blockchain.com.
It’s estimated that the majority of mining facilities that are pulling the plug are ones that were utilizing out dated mining rigs such as Antminer T9+ by Bitmain and AvalonMiner 741 by Canaan Creative. As you may know, miners are rewarded with Bitcoin for their efforts. The estimated price of Bitcoin for older rigs to turn a profit is $7,000. With Bitcoin’s recent drop below the $4,000 mark, these mining operations would be operating in the negative
“It’s hard to calculate a precise number of miners connected to us that had unplugged. But we saw over tens of thousands of them [shut down] in the past several days based on conversations we had with larger farms that we are in regular contact with” stated Mao Shixing, founder of F2Pool.
But why are they shutting down?
There’s no one reason why such large numbers of miners are ceasing operations except for the common factor of no longer turning a profit. But why?
The obvious answer for the decline in operation in the plummeting value of Bitcoin. Bitcoin is down nearly 80% in value from its all time high last December of 2017, and the future looks grim. But the declining price of Bitcoin is not the only explanation.
On November 15th, Bitcoin Cash experienced a hard fork that resulted in a market decline for itself and other major tokens.
Electricity prices in China are currently rising due to the arrival of winter in China. During the winter months electricity prices can rise above 0.3 yuan ($0.043) per KW/h versus the lower summer prices of 0.2 yuan ($0.029) per KW/h. This change in electricity pricing can determine whether a mining farm stays in operation or shuts down for the winter.
Another reason for the mass shutdown is China’s foot race to upgrade their mining rigs. As stated earlier, older mining rigs are now unable to turn a profit with the market crash and raising electricity prices. The majority of mining operations in China have been operating with the same rigs since 2016 or 2017. This hasn’t been an issue for them because of the market boom that was experienced during that time frame.
Technology is a field where hardware quickly and easily becomes outdated and obsolete. The miners that chose to continuously operate on these older models are now paying the price as their machines are now obsolete to the industry.
It’s important to note that while large numbers of chinese miners have ceased operation, that doesn’t mean that they are out completely or that others have chosen to stay in the game. In the past, those who stay in operation during a market recession profited greatly when the market turned around. Some facilities in China are seasonal and do shut down during the winter months to save money.
Hong-Kong based trader, Ryan Rabaglia, notes that;
“As weaker hands leave the Bitcoin network, the difficulty of mining the cryptocurrency declines. A cull could ultimately benefit the survivors, assuming Bitcoin’s price doesn’t fall too fast.”