Bitcoin mining has totally recovered from the Chinese crypto crackdown that took more than half the world’s miners offline virtually overnight earlier this year.
The recovery is measured by looking at hashrate, a term used to describe the computing power of all miners in the bitcoin network. China had long been the epicenter of this industry, with past estimates indicating that 65% to 75% of the world’s bitcoin mining happened there. But after Beijing effectively banished the country’s cryptocurrency miners in May, more than 50% of bitcoin’s hashrate dropped off the global network.
As of Friday, data from Blockchain.com shows that the network has completely pared back those loses. The network’s hashrate is up about 113% in five months.
“Bitcoin withstood a nation-state attack of China actually banning mining, and the network shrugged it off,” said Kevin Zhang of digital currency company Foundry, which helped bring over $400 million of mining equipment into North America.
The upward momentum in hashrate may bode well for the price of the world’s most popular cryptocurrency, which is down 30% over the last month. China’s ban was a clear “buy” signal, just as it was with Google and Facebook before it, according to bitcoin mining engineer Brandon Arvanaghi, who now runs Meow, a company that enables corporate treasury participation in crypto markets.
But for Arvanaghi, the biggest takeaway of this entire ordeal is the fact that bitcoin mining survived its greatest stress test yet with little drama.
“The bitcoin network withstood an attack by a major superpower and emerged stronger than ever six short months later. How can anyone ever argue, ‘But what if nations ban it?’ again?” he said.
Bitcoin’s speedy recovery
When half the bitcoin network went dark this spring, many experts said that miners would come back online in North America. A lot of predictions were also made about the timeline to restore the network to its previous high.
No one that CNBC spoke to thought the network would bounce back by the end of the year.
Texas bitcoin miner and engineer Marshall Long — who is the head of architecture at Rhodium Enterprises, a fully integrated bitcoin miner using liquid-cooled infrastructure — tells CNBC he was a bit surprised by the pace of its recovery.
“I figured we would be here sometime in late January, early February,” he said. Others thought it would take even longer than that, tacking another six to twelve months onto Long’s prediction.
According to Zhang, the bitcoin network’s speedy recovery came about because the U.S. laid the groundwork to become a new mecca for mining. Zhang says that in the States, there is a “huge appetite for growth, building infrastructure, and leveraging stranded power.”
Companies in the U.S. have been quietly boosting their hosting capacity for years, gambling that if adequate infrastructure were in place, miners would set up shop in the U.S. when the time was right.
When bitcoin crashed in late 2017 and the wider market entered a multi-year crypto winter, there wasn’t much demand for big bitcoin farms. U.S. mining operators saw their opening and jumped at the chance to deploy cheap money to build up the mining ecosystem in the States.
“The large, publicly traded miners were able to raise capital to go make big purchases,” said Mike Colyer, CEO of Foundry.
Core Scientific founder Darin Feinstein agrees there has been a serious growth of mining infrastructure in America. “We’ve noticed a massive uptick in mining operations looking to relocate to North America, mostly in the U.S.,” he said.
Companies like Core Scientific kept building out hosting space all through the crypto winter to ensure the capacity to plug in new gear.
Alex Brammer of Luxor Mining, a cryptocurrency pool built for advanced miners, points out that maturing capital markets and financial instruments around the mining industry also played a big role in the industry’s quick ascent in the U.S. Brammer says many American operators were able to start rapidly expanding once they secured financing by leveraging a multi-year track record of profitability and existing capital as collateral.
Covid played a role, too.
Though the global pandemic shut down large swaths of the economy, government stimulus money proved a boon for U.S. mining companies.
“All the money printing during the pandemic meant that more capital needed to be deployed,” explained Arvanaghi.
“People were looking for places to park their cash. The appetite for large-scale investments had never been bigger. A lot of that likely found its way into bitcoin mining operations in places outside of China,” continued Arvanaghi.
That gamble has paid off. Data from Cambridge University shows that the U.S. is now the number one destination for bitcoin miners, eclipsing China for the first time ever.
But the picture may not be as simple as it looks.
According to multiple sources, many miners who didn’t have the resources to relocate stayed put in China, moving their operations underground. Some went “behind the meter,” drawing power directly from sources like hydro dams in the southern province of Sichuan. Others divided their mining operations into much smaller farms across the country that the authorities were less likely to notice.
Whatever the cause behind bitcoin’s faster-than-expected bounceback, bitcoin miner Alejandro de la Torre — who has spent years minting crypto all over the world, including in China and most recently in Austin, Texas — tells CNBC that the bigger lesson here is the resilience of the global mining industry.
“I’m confident any black swan events that may come to bitcoin mining in the future will also be a non-event,” de la Torre said.