Will the Bitcoin bull market continue? Here’s what miners think
Tags: Asics, Cryptocurrency, Bitcoin Mining, Observatory, Bitcoin

Will the Bitcoin bull market continue? Here’s what miners think Titan Follow Sep 8 · 5 min read

Despite China’s insistent crackdowns on cryptocurrency-related activities and Biden’s infrastructure bill, Bitcoin miners are reluctant to give up on their ASICs.

China’s mining ban aftermath

Even though it happened months ago, the consequences of China’s crackdown on mining back in June are still unfolding. However, the way they are playing out today is very different from the first outcomes we saw almost immediately after the decision came out.

The short-term consequences of China’s mining ban are well known. The network suffered a ~50% drop in hashrate, followed by a similar fall in mining difficulty, making mining dramatically more easy and profitable for other miners.

Chinese miners either relocated — North America being one of the most popular destinations — or sold their equipment. This led to the market being flooded with ASIC miners, making their prices plummet. All this was followed by a continuation of Bitcoin’s dip, falling as low as $28,000.

Nevertheless, we know Bitcoin has a resilient community. As the migrating miners keep finding new homes, hashrate is slowly and gradually recovering. Meanwhile, those who keep mining enjoyed — and are still enjoying — an extraordinarily rare period of profitability.

Positive signs for recovery

Before the ban, China used to host around half of the world’s Bitcoin hashrate. And even though we see its slow return to the network, it will be months until it fully recovers.

However, the uncertainty and fear that most of the community felt after the crackdown seem to have dissipated. Bitcoin kept running as if nothing had happened and without any grave implications. And as more and more miners came back online, optimism rose.

Bitcoin’s global hashrate (Source: Coin Metrics).

The positive expectations have also shown in Bitcoin’s price. In the last weeks of August, it managed to break out of the long-lasting $28,000–38,000 range and reaching $51,000. This jump in price outpaced hashrate’s recovery, making mining even more profitable. In fact, this is one of the best moments in history to mine Bitcoin — a one-of-a-kind occasion where low difficulty meets high price.

The whole situation played out so that the upside miners enjoy now significantly outweighs the losses and risks they had when it was starting. Those who managed to acquire ASIC miners at a discount back in July not only have taken advantage of this epoch of mining prosperity but are seeing the price of their hardware rise again.

Miners are bullish

ASIC miners are subject to several factors that can affect their market price. Besides the fundamental laws of supply and demand, this type of equipment value can vary according to the availability of its components. Nevertheless, in most cases, the most influential factor is Bitcoin’s price.

That said, it’s logical that after BTC recovered to the upper $40,000s, ASIC prices followed. Take a look at the charts below.

Bitcoin price action (Source: Coin Metrics).

Market price for Antminer’s S19 model (Source: Hashrate Index).

Market price for Whatsminer’s M20 model (Source: Hashrate Index).

As you can see, Bitcoin ended a three-month downward trend in July, where ASIC prices also reached their lowest point in the year. Like clockwork, as Bitcoin started its recovery, we can see that hardware prices also ended their falling trend and sprung back up, even though they haven’t fully recovered.

Now, one would think that Chinese miners who haven’t managed to relocate and resume operations yet would take advantage of this resurgence to make a profit.

Well, think again. According to Vincent Vuong — Director of Sales at Compass Mining — , Chinese miners still have “thousands of units” they are not willing to sell. They are just sitting on their idle mining hardware.

There are two logical explanations for this. One, they still haven’t found a proper destination for resuming their mining operations, which is understandable due to the ongoing travel restrictions and logistic bottlenecks worldwide following the seemingly never-ending coronavirus pandemic. Many of the mining operations that had to shut down in China were large-scale or even enterprise-level, so it may take longer to coordinate and execute the migration.

Another possibility is that even if they’ve decided to give up on mining, they expect Bitcoin to continue its upward trajectory. As we’ve already said, ASICs’ prices tend to follow Bitcoin’s movements, so further continuation of the bull market would mean they could sell their equipment at a higher price. That’s enough reason to believe that miners are still bullish.

What to expect from the mining ecosystem

Only miners know to what extent they can retain their idle miners until they sell them for bigger profits. But as long as Bitcoin keeps showing signs of strength, it’s probable that we’ll see mining hardware prices increasing accordingly. As Vuong said, “When bitcoin price goes up, nobody has the incentive to sell their machines.”

Added to the supply shortage, we must also consider the 20% rise in wafer prices that Bitmain’s provider announced at the end of August. Wafers are an essential component in ASIC miners, and this increase will likely impact their price. We will probably see these changes take effect in Q1 2022.

Other events could impact the Bitcoin mining landscape as well, like Iran’s mining ban expiration, which is supposed to happen this month. Assuming the country effectively allows Bitcoin mining again, Chinese miners could talk advantage of its proximity and surplus of oil and natural gas to relocate to Iran and resume mining operations with favorable conditions.

In any case, although it drives prices up, the shortage of ASIC miners is a bullish symptom and a positive sign from the market. And the fact that all this is happening just a couple of months after the world’s capital of Bitcoin mining kicked out its miners only speaks about the strength of the network.