The US is now the number one target for Bitcoin miners, dwarfing China for the first time. While it was already trending in that direction, new Cambridge University data released early Wednesday make it official.
According to the Cambridge Center for Alternative Finance, as of July 35.4% of bitcoin’s hashrate – an industry term used to describe the collective computing power of miners – is in the United States. That is 428% more than in September 2020.
America owes in part to China for its newfound dominance in the mining industry.
Twelve months ago, China was the market leader in hashrate – by far. But Beijing’s spring crypto raid took half of the world’s bitcoin miners offline practically overnight.
Miners began to flee China en masse to get to the cheapest energy sources on the planet in what has been referred to as “the great mining migration”. Many of them ended up in America.
The newly released Cambridge data sets China’s average monthly share of the global hashrate to zero in July – a major reversal since September 2020 when China captured about 67% of the market.
“The whole narrative that China controls Bitcoin is now completely destroyed,” said Boaz Sobrado, a London-based fintech data analyst.
Off to America
The US is ticking many boxes for migrant bitcoin miners looking for a new home.
For one, states like Texas have some of the lowest energy prices in the world, which is a major incentive for miners to compete in a low-margin industry where their only variable cost is typically energy.
The US is also full of renewable energy sources.
Washington State is a mecca for hydropower mining operations. New York produces more hydropower than any other state east of the Rocky Mountains and has nuclear power plants as its 100% carbon-free electricity destination. Meanwhile, Texas’s share of renewable energy is growing over time, with 20% of its electricity coming from wind power as of 2019. The Texas grid continues to rapidly add more wind and solar power.
Miners across the country have also used nuclear power. Some tie their rigs to otherwise stranded energy, such as natural gas, which is wasted in oil fields across Texas. This reduces greenhouse gas emissions and makes money for the gas utilities and miners.
This shift towards zero-emission, clean energy sources has already begun to rethink the narrative among skeptics that Bitcoin is bad for the environment.
“Mining is price sensitive to looking for the cheapest electricity, and the lowest cost electricity is usually renewable because when you burn fossil fuels … Back said.”
In addition to lower electricity costs, some US states such as Texas also have crypto-friendly politicians and an adequate supply of hosting infrastructure.
The state has a deregulated power grid with real-time spot prices where customers can choose between power providers, and most importantly, its political leaders are pro-crypto. These are dream conditions for miners who want a friendly welcome and cheap energy sources.
“If you’re looking to move hundreds of millions of dollars of miners out of China, you want to make sure you have geographic, political, and judicial stability as you move,” said Darin Feinstein, co-founder of Core Scientific.
Luck meets preparation
America’s rise to the top is also a godsend in meeting preparation. The US has been quietly increasing its hosting capacity for years.
Before bitcoin miners came to America, companies across the country were gambling that, if adequate infrastructure were in place, they would eventually settle in the US
This game of chance pays off.
When bitcoin collapsed 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, publicly traded 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.
Feinstein says that in the past 18 months, America’s mining infrastructure has grown significantly. “We have seen a massive increase in mining operations moving to North America, mostly the US,” Feinstein continued.
According to Colyer, companies like North American crypto mining operator Core Scientific expanded hosting areas throughout the crypto winter to ensure capacity to plug in new devices.
“Much of the new equipment manufactured between May 2020 and December 2020 was shipped to the US and Canada,” he said.
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 that many These American operators have been able to begin expanding rapidly once they secure funding, using a multi-year track record of profitability 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.
Then there is Kazakhstan
Not all miners go to renewable goals, however.
Kazakhstan ranks just behind the US in terms of its share of the global bitcoin mining market with 18.1% of total crypto mining. It is home to coal mines, which provide cheap and abundant energy supplies – but also abundant carbon dioxide emissions.
However, several mining experts tell CNBC that they think Kazakhstan, which borders China, is just a temporary stop on a lengthy migration west.
Brammer sees large miners there with older generation equipment for a short time. “But when older generation machines reach the end of their life, these companies are likely to deploy new machines in more stable, energy-efficient and renewable legal systems,” he said.
A new law signed by the president that will introduce additional taxes for crypto miners from 2022 should also put a damper on Kazakhstan’s popularity.
“This will significantly change the incentives for people to deploy capital in Kazakhstan,” said Brammer.