The U.S. Bitcoin Mining Industry Will Grow Rapidly in the Coming Years
Tags: Bitcoin News, Bitcoin, Blockchain Development, Cryptocurrency Investment, Bitcoin Mining

Photo by Dmitry Demidko on Unsplash

2020 is a year of accelerated growth in crypto digital finance in the U.S. market, especially in the fourth quarter, when PayPal began offering bitcoin payment buying and selling services to its 300 million users worldwide. Listed company MicroStrategy purchased a total of $425 million in Bitcoin. Asset management firm Guggenheim plans to spend up to $500 million on bitcoin purchases, while Diem (formerly Libra) plans to issue digital stablecoins based on the U.S. dollar first in 2021, and Visa plans to issue credit cards based on USDC.

These actions in the market have driven the price of bitcoin up significantly again. Positions in bitcoin derivatives on the Chicago Mercantile Exchange are the highest in the world. It is highly likely that Bitcoin will reach an all-time high of $20,000 before the end of 2020. The major position in Bitcoin’s December 2021 option is at $50,000, which shows the market’s optimism about Bitcoin’s future.

The bull market this time is fundamentally different from 2017.

The growth in 2017 was mainly the result of speculation in the market. The bubble bursted quickly after reaching new highs due to its unstable foundation. Since 2017, crypto-digital finance has continued to grow in the US market, and developments in some of these areas are largely determined by regulatory policy. Different regulatory policies by different financial regulators in the US have led to a wide variation in these developments in the US industry. But in areas that are not financially regulated, progress is entirely the result of the market’s own choices. Bitcoin mining is one such area.

In terms of bitcoin mining, the U.S. market is not a global leader.

Given the price volatility, the nature of the mining business, and the costs involved, the U.S. market is not very optimistic about this business. So the U.S., although one of the leading countries in this field, is not the most advanced.

But this situation now appears to be changing significantly. The U.S. market’s judgment of the development of crypto digital finance has changed dramatically. One result of this is a significant increase in the price of bitcoin, which is much less volatile. The cost of mining each bitcoin is between $5,000 and $6,000, while bitcoin’s current price is close to $20,000, and the market is generally optimistic about bitcoin’s future growth. A very extreme view on this is expressed by Tim Draper, a famous American venture capitalist. He believed in late 2019 that the price of bitcoin would reach $250,000 by the end of 2022 or early 2023.

Tim Draper is a firm believer in Bitcoin and has been buying large amounts of it for a long time. His capital investment is consistent with his views. In terms of market size, the expected future price of bitcoin makes it possible to meet the basic requirements for many institutions to enter this business. Finally, as the mining business develops today, higher thresholds have begun to appear. For example, in today’s U.S. market, $100 million in capital investment should be the most basic requirement. As a result of these characteristics, bitcoin mining has become a very viable business for many organizations. In 2019 and 2020, the U.S. market is already experiencing growth in bitcoin mining. As we can see from the two charts below, the global market share of bitcoin hash rate in the U.S. market has grown significantly during this period.

Bitcoin Global Hashrate Rankings, September 2019

Bitcoin Global Hashrate Rankings, April 2020

The main factors determining bitcoin mining are the price of electricity and the efficiency of mining machines.

In terms of the price of electricity, the bare cost of electricity in the United States can be as low as 3.5 cents, equivalent to 0.23 RMB. Such a price is very competitive on a global scale. Another important factor that determines the bitcoin mining business is the stability of the electricity supply. This is because the Bitcoin system runs 24/7, and therefore the Bitcoin mining business needs to run uninterruptedly. The U.S. market has a very good guarantee for the stability of the power supply, which is very important for the mining business.

In terms of capital markets, the U.S. market also has a very strong advantage in this regard. Therefore, there is a very good basis for bitcoin mining business in the US market. But on the other hand, the U.S. market is not the most competitive in terms of construction and operating costs and taxes. But the overall assessment is that the US is a very good choice for bitcoin mining business. That’s why companies like those from Germany, Canada, and Japan are starting bitcoin mining operations in the U.S. In 2020, there are already companies that are building mines with a capacity of 300 MW, and it is expected to see even more significant growth in the coming years.

Article from Gu Yanxi, Founder of Liyan Consulting

Translated by Yang(Mengyan Finance)