Whinstone CEO Chad Harris takes CNBC on a tour of North America’s largest bitcoin mine.
Bitcoin mining has fully recovered from the Chinese cryptocurrency crackdown that took more than half of the world’s miners offline virtually overnight earlier this year.
Recovery is measured by looking at the hashrate, a term used to describe the computing power of all miners on the bitcoin network. China had long been the epicenter of this industry, with previous estimates indicating that between 65% and 75% of the world’s bitcoin mining took place there. But after Beijing effectively banished cryptocurrency miners from the country in May, more than 50% of the bitcoin hashrate left the global network.
As of Friday, data from Blockchain.com shows that the network has completely reduced those losses. The network’s hashrate has increased by approximately 113% in five months.
“Bitcoin withstood a nation-state attack from China that actually banned mining, and the network shrugged,” said Kevin Zhang. from digital currency company Foundry, which helped bring more than $ 400 million in mining equipment to North America.
The upward momentum in the hashrate may bode well for the price of the world’s most popular cryptocurrency, which is down 30% over the past month. China’s ban was a clear “buy” signal, just as it was with Google and Facebook before, according to bitcoin mining engineer Brandon Arvanaghi, who now runs Meow, a company that allows corporate treasury participation in crypto markets.
But for Arvanaghi, the biggest thing about this entire ordeal is the fact that bitcoin mining survived its biggest stress test yet with little drama.
“The bitcoin network withstood an attack from a major superpower and emerged stronger than ever six short months later. How can anyone argue, ‘But what if nations forbid it?’ again?” he said.
The rapid recovery of Bitcoin
When half of the bitcoin network went offline this spring, many experts said that miners would be back online in North America. Many predictions were also made on the timeline to restore the network to its previous level.
No one CNBC spoke to thought the network would recover by the end of the year.
Texas bitcoin miner and engineer Marshall Long, who is the chief architect of Rhodium Enterprises, a fully integrated bitcoin miner using liquid-cooled infrastructure, tells CNBC he was a bit surprised by the pace of his recovery. .
“I thought we would be here sometime in late January, early February,” he said. Others thought it would take even longer, adding another six to twelve months to Long’s prediction.
According to Zhang, the rapid recovery of the bitcoin network came about because the US laid the groundwork to become a new mecca for mining. Zhang says that in the United States there is a “huge appetite for growth, the construction of infrastructure and the use of stranded energy “.
Companies in the US have been quietly increasing their hosting capacity for years, betting that if there was the right infrastructure, miners would settle in the US when the time was right.
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. The American mining operators saw its opening and seized the opportunity to deploy cheap money to build the mining ecosystem in the States.
“Large public miners were able to raise capital to make large purchases,” said Mike Colyer, CEO of Foundry.
Core Scientific founder Darin Feinstein agrees that there has been significant growth in mining infrastructure in the United States. “We have noticed a massive rebound in mining operations looking to relocate to North America, primarily the United States,” he said.
Companies like Core Scientific continued to build hosting space throughout the crypto winter to ensure the ability to connect new equipment.
Alex Brammer of Luxor Mining, a cryptocurrency group created for advanced miners, notes that the maturing of the mining industry’s capital markets and financial instruments also played a role in the rapid rise of the industry in the US. Brammer says that many US carriers were able to quickly start expanding once they secured financing by leveraging a multi-year track record of profitability and existing equity as collateral.
Covid also played a role.
Although the global pandemic shut down large swaths of the economy, the government stimulus money turned out to be a boon for American mining companies.
“All the money printing during the pandemic meant that more capital needed to be deployed,” Arvanaghi explained.
“People were looking for places to park their cash. The appetite for large-scale investments has never been greater. A lot of it probably found its way into bitcoin mining operations in places outside of China,” Arvanaghi continued.
That bet has paid off. Cambridge University data shows that the US is now the number one destination for bitcoin miners, eclipsing China for the first time.
But the image may not be as simple as it seems.
According to multiple sources, many miners who did not have the resources to relocate stayed in China, moving their operations underground. Some went “behind the meter,” drawing power directly from sources such as hydroelectric dams in the southern province of Sichuan. Others divided their mining operations into much smaller farms across the country that authorities were less likely to notice.
Whatever the cause behind bitcoin’s faster-than-expected rebound, bitcoin miner Alejandro de la Torre, who has spent years minting cryptocurrencies around the world, including in China and most recently in Austin, Texas. – tells CNBC that the biggest lesson here is the resilience of the global mining industry.
“I am sure that any black swan event that may come to bitcoin mining in the future will not be an event either,” de la Torre said.