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FEB 17, 2024

WuBlockchain Podcast: Talk with MinerMag Founder Wolfie on "Bitcoin Mining Industry Under Halving Pressure"

by 吴说猫弟, WuBlockchain

Editor | WuBlockchain
Wolfie, formerly a journalist and researcher at CoinDesk and TheBlock, later founded the MinerMag column at, and is currently one of the most in-depth authors studying the Bitcoin mining industry. In this podcast episode, we discussed the current landscape and trends of mining machines, mining pools, and mining farms, as well as the pressures the Bitcoin mining industry may face under the halving pressure.
Please introduce yourself briefly
I first joined CoinDesk in 2017, focusing on reporting industry news within the Asian region. Given China's significant impact on the industry at the time, my focus was mainly on exchanges, mining, and various projects. As a result, I gradually shifted more attention to the mining sector. Later, I moved to The Block, continuing similar work until 2021. That year, the crackdown on mining was particularly severe, and I then shifted towards research work. Especially during the bull market of 2021, many North American mining companies went public, making publicly available data more abundant, thus providing ample space for content production and research. Mining is not only an important investment field but also offers rich material for researchers.
After leaving The Block, I noticed many companies tended to focus only on specific areas. Therefore, I decided to strike out on my own and create a platform focused on mining data, news, and research, which is TheMinerMag. After founding it with my friend, our primary work involves monitoring data from all publicly listed mining companies in North America, extracting information from their financial reports for organization, and presenting it visually to track these companies' monthly and quarterly progress. Our goal is to provide services in data analysis and visualization. We track and regularly update data from all major publicly listed mining companies in North America, with all information published on platform.
As for the profit model, consulting services are just a part of our income sources, helping us maintain the operation of the platform. Currently, the data and research content we provide are mostly free, but we plan to generate income through implementing paid subscriptions, among other methods. This may include setting up paywalls, restricting access to certain data, mainly targeting investors in mining shares and stocks, as well as sell-side research institutions and analysts who need this data for analysis. The raw data we provide is particularly important to them.
Do enterprises like Bitmain and Whatsminer still hold a monopolistic position? Has there been any change compared to the past?
Currently, the monopoly in the industry mainly resides with two major enterprises. Since 2023, we have indeed observed some companies attempting to enter the mining machine market, including Intel. Despite Intel's attempts to enter this field and launching two generations of products, it seems to have exited, indicating a relatively short lifecycle in this market. Additionally, there have been movements in North America.
The recent development cycle, compared to the past, seems to have slowed down. Previously, new entrants to the hardware field might find that by the time they joined, the pace of product iteration was so fast that their technology was already one to two generations behind leaders like Bitmain or Whatsminer. This pace of iteration, from over 110 J/T down to just over 10 J/T, and even smaller, used to be very rapid. But now, this pace might slow down, giving companies still hoping to enter this industry more time to prepare.
Although the market landscape may change, it remains to be seen whether U.S. companies will be able to ship smoothly by 2024, and whether these machines will achieve the efficiency promised in their marketing. For example, some companies might compete with Bitmain and Whatsminer if they can deliver on their advertised data, but the volume of shipments is still unknown.
Speaking of Bitmain and Whatsminer, the past year has seen a significant increase in pre-orders after the release of the S21, with some publicly listed mining enterprises placing orders for hash rate futures worth several to over ten Exahashes, which is more pronounced compared to the previous S19xP. It is understood that Bitmain still holds a large number of S19xPs in 2023 and has also begun deploying its own mining farms, participating in mining or cloud computing services, suggesting that shipments of S19xP to clients will increase.
In fact, many S21 orders booked, compared to the prices at the end of 2022 to early 2023, show a certain degree of price reduction. The price of purchasing S19xP at the beginning of 2023 might still be around $20, but by the end of the year, despite a slight market recovery, the futures price of S21s remained cheaper. This explains why many companies, including Bitfarms, were not in a hurry to purchase mining machines during 2022 to 2023 but chose to wait for a cycle to buy at lower prices.
Moreover, according to customs data from North America, Bitmain's hash rate imported from Asia to its U.S. subsidiary is very large, estimated to be between 30 to 50 Exahashes. This indicates that in addition to supplying some to clients, Bitmain might also be mining on a large scale itself.
Have there been any new developments with mining pools?
The landscape of mining pools has not seen significant changes since 2022, with Foundry leading the way and the rankings of other pools remaining stable. However, it's worth noting that North America's share of computing power has exceeded 50%, which has become particularly evident over the past two years. Another trend is that, since early 2022, many pools have started to form a kind of alliance with Antpool. Although the exact share of computing power is unclear, the block rewards from Coinbase often seem to be pooled towards Antpool. Leveraging its larger capital scale and adopting the FPPS model, Antpool ensures it has more reserves to cope with fluctuations in luck. It's observed that about ten small to medium-sized pools consolidate their block rewards to an address belonging to Bitmain's Antpool for distribution. This phenomenon has become more apparent since 2022, with Binance also being part of it, along with some smaller pools like OKX, which may essentially be leveraging others' computing power as a white label. From the perspective of computing power concentration, the computing power of Foundry and Antpool has already exceeded 50% since 2022, reflecting a centralization trend to some extent. However, some argue that this computing power can be switched at any time, so there is no risk of excessive centralization.
How do you view some mining pools beginning to filter transactions from sanctioned addresses?
In response to certain U.S. policies, if such requirements exist, it seems unavoidable to adjust and filter mining pools, especially for pools like Foundry that primarily serve U.S. customers. They may need to devise plans to comply with policy demands. For example, F2Pool also temporarily stopped some types of filtering later on.
Personally, I believe that proactive filtering without explicit legal requirements may not fully align with the spirit of the crypto world. Smaller pools like Ocean attempt to achieve a fully decentralized model, where block rewards are directly sent to participating miners' addresses, allowing miners to autonomously choose which transactions to include. This represents some changes and trials over the past year. However, even such pools have begun filtering transactions they consider to contain too much redundant information, like ordinals, sparking some controversy.
From a profit perspective, many pools seem to support these activities. Taking Marathon as an example, in one month, transaction fee income accounted for 25% of that month's output. Therefore, they are open to such transactions, without expressly supporting or opposing them. The stance of pools appears to be: if there are transactions that miners need to package, we will package them and earn income from it.
On the other hand, large miners, especially well-known publicly traded companies, often prioritize their stock price and investors. Their goal is to ensure the promised computing power is fully utilized, mine more coins, and thus maximize profits. While they need to disclose some data publicly, they also tend to keep a low profile, adopting a "silent wealth accumulation" strategy.
Have there been any reshuffles among publicly listed mining companies? Is there a trend towards more concentration and stability in operations?
We track the output of approximately fifteen to twenty mining companies each month, whose combined output accounts for about 20% of the overall market, below the 50% estimate. Indeed, the overall trend shows this percentage is rising, from about 15% to 16% at the start of 2022 or 2023 and gradually increasing. It's noteworthy that some companies do not disclose data monthly but opt for quarterly disclosures.
In this process, a game theory phenomenon can be observed. As each company expands its network computing power, the overall network's computing power is also pushed higher. However, this expansion does not mean companies can proportionally increase their market share because everyone is increasing computing power. Thus, even if an individual company's computing power doubles, the growth in market share won't be proportional. Over time, it's expected that these companies' shares in the overall market will gradually increase, but this also depends on how many futures orders they can fulfill in 2024 and 2025 and the conditions of their locked-in price options.
The expansion plans of these companies also depend on the speed and scale of mining farm construction. Especially considering this is a capital-intensive industry, after the fluctuations of borrowing and bankruptcy in 2021, the de-leveraging trend in 2022 required companies to alleviate financial burdens by selling Bitcoin and repaying loans. Many companies turned to the stock market for financing, hoping to support future capital needs. Therefore, the market environment in 2024 will be a crucial factor in determining whether these mining companies can successfully invest the funds needed for the future.
What impact will the halving event have on miners?
Facing the pressures of the mining industry, data from the third quarter shows that the average mining cost of major publicly listed mining companies is around $20,000, mainly covering electricity and site operation costs. Considering the anticipated growth in network computing power in the fourth quarter and the first quarter, the actual costs could be higher. Thus, it's expected that some will choose to shut down their mining rigs, especially when the profit margin between mining costs and the current price of Bitcoin is narrow. If costs reach $30,000 to $40,000, while the Bitcoin price is only $40,000, then the gross margin will be very limited, and this doesn't even consider the operational expenses of the team.
The cost analysis I mentioned is based solely on the direct costs of mining, such as electricity, hosting fees, and site-related expenses. However, as a publicly listed company, there are additional overheads to bear, including office, marketing, legal audits, and other expenses, which, when combined, will exert tremendous pressure on the company's financial situation.
Therefore, to remain competitive, mining companies must invest in next-generation mining machines. This investment is particularly important in a market with significant volatility and potential Bitcoin price drops to $20,000 to $30,000, as even the more efficient S19xP miners struggle to profit at these price levels. All these highlight the complexity and challenges within the mining industry and the meticulous consideration companies need in strategic planning and financial management.
How is the expansion of miners outside North America?
Information about the mining industry is mainly obtained through internal industry communication, as public disclosures are limited. Russia and the Middle East have contributed significantly to computing power growth in recent years, partly due to Russian companies' business development (BD) activities in the Middle East and the construction of some mining farms in the region. The situation in Africa is relatively less pronounced, with mining activities there appearing to be on a smaller scale.
Phoenix, as the first large publicly listed mining enterprise in the Middle East, has an interesting business model. They primarily promote mining and hosting services, but at least in 2021 and 2022, a significant portion of their revenue came from mining machine sales, acting mainly as agents for Whatsminer and Bitmain in the Middle East. This indicates the strong demand for mining equipment in the region. After going public, Phoenix has more capital to purchase new machines, whether for continued sales or their mining operations, which helps their business expansion in the Middle East.
Regarding Russia, Russian teams are evidently active internationally, including participation in various blockchain-related conferences held in Dubai, with major mining machine manufacturers like Bitmain and Canaan also involved in these events, further demonstrating the high demand for mining in the region.
As for South America, the situation there is somewhat similar to the early days of China and Central Asia, where successful mining operations depend on strong local relationships and resources. Although the political situation in South America may not be as stable as in North America, this also highlights the diversity and complexity of the global mining industry and the specific factors to consider when operating in different regions.
What is the current policy in the US regarding the mining industry?
Texas is quite friendly to the mining industry, with mining activities partly relying on miners' contributions to the electrical grid. During extreme weather conditions, such as blizzards or significant drops in temperature, Texas miners shut down about 25% of their computing power, primarily from the state's own mining farms. This practice not only reflects the significant energy consumption of the mining industry on the electrical grid but also shows that miners can support grid stability by reducing energy consumption in emergencies, which has been positively received in Texas.
The mining industry reportedly accounts for a considerable share of Texas's electrical grid, about 5%. This indicates that the mining industry is not only popular in Texas but also has a relatively close relationship with the electrical grid, capable of providing load regulation and alleviating the grid's burden when necessary.
However, there are some issues, especially when mining farms are set up near residential areas, which may raise residents' concerns about noise pollution and the impact on quality of life. This situation has become particularly apparent in some counties, where residents may express dissatisfaction with local governments.
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