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The U.S. is now the number one destination for bitcoin miners, eclipsing China for the first time ever. While it was already trending in that direction, new data from Cambridge University released early Wednesday makes it official.
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, according to the Cambridge Centre for Alternative Finance. That’s a 428% increase from September 2020.
America partly has China to thank for its newfound dominance in the mining industry.
Twelve months ago, China was the market leader in terms of hashrate – by a long shot. But Beijing’s crypto crackdown in the spring took half the world’s bitcoin miners offline practically overnight.
Miners started fleeing China en masse, heading to the cheapest energy sources on the planet in what was dubbed “the great mining migration.” A whole lot of them ended up in America.
The newly-released Cambridge data zeroes out China’s average monthly share of the global hashrate in July – a major reversal from September 2020, when China captured about 67% of the market.
“The whole narrative of China controls bitcoin is now completely destroyed,” said Boaz Sobrado, a London-based fintech data analyst.
Heading to America
The U.S. ticks a lot of boxes for migrant bitcoin miners searching for a new home.
For one, states like Texas boast some of the world’s lowest energy prices, which is a major incentive to miners who compete in a low-margin industry, where their only variable cost is typically energy.
The U.S. is also flush with renewable power sources.
Washington state is a mecca for hydropowered mining farms. New York produces more hydroelectric power than any other state east of the Rocky Mountains, and it counts its nuclear power plants toward its 100% carbon-free electricity goal. Meanwhile, Texas’ share of renewables is growing over time, with 20% of its power coming from wind as of 2019. The Texas grid also continues to rapidly add more wind and solar power.
Miners across the country have also harnessed nuclear power. Some are latching their rigs to otherwise stranded energy, like natural gas going to waste in oil fields across Texas. This reduces greenhouse gas emissions and generates money for the gas providers and miners.
This shift toward zero-emission, clean energy sources has already begun to recast the narrative among skeptics that bitcoin is bad for the environment.
“Mining is price sensitive, so as to seek out the lowest-cost power and the lowest-cost power tends to be renewable because if you’re burning fossil fuels … it has extraction, refinement and transport costs,” Blockstream CEO Adam Back said.
Besides lower electricity costs, some U.S. states like Texas also have crypto-friendly policymakers and an adequate supply of hosting infrastructure.
The state has a deregulated power grid with real-time spot pricing that lets customers choose between power providers, and crucially, its political leaders are pro-crypto. Those are dream conditions for miners who want a kind welcome and cheap energy sources.
“If you’re looking to relocate hundreds of millions of dollars of miners out of China, you want to make sure you have geographic, political, and jurisdictional stability. You also want to make sure there are private property rights protections for the assets that you are relocating,” said Darin Feinstein, co-founder of Core Scientific.
Luck meets preparation
America’s rise to the top is also a case of luck meeting preparation. The U.S. has been quietly boosting its hosting capacity for years.
Before bitcoin miners started coming to America, companies across the country made a gamble that eventually, if adequate infrastructure were in place, they would set up shop in the U.S.
That gamble is paying off.
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 digital currency company Foundry, which helped bring over $300 million of mining equipment into North America.
Feinstein says that in the last 18 months, 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.,” continued Feinstein.
Companies like North American crypto mining operator Core Scientific kept building out hosting space all through the crypto winter to ensure the capacity to plug in new gear, according to Colyer.
“A majority of the new equipment manufactured from May 2020 through December 2020 was shipped to the U.S. and Canada,” he said.
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 of these 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 also played a role.
Though the global pandemic shut down large swaths of the economy, the ensuing stimulus payments proved a boon for U.S. mining companies.
“All the money printing during the pandemic meant that more capital needed to be deployed,” explained bitcoin mining engineer Brandon 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.
Then, there’s Kazakhstan
Not all miners, however, are headed to renewable destinations.
Kazakhstan is just behind the U.S. in terms of its share of the global bitcoin mining market, with 18.1% of all crypto mining. It’s home to coal mines that provide a cheap and abundant supply of energy — but also ample carbon dioxide emissions.
However, several mining experts tell CNBC they think that Kazakhstan, which neighbors China, is just a temporary stopover on a longer migration west.
Brammer sees large miners going there in the short-term with older-generation equipment. “But as older-generation machines reach the end of their service lives, those companies will likely deploy new machines into more stable and energy efficient and renewable jurisdictions,” he said.
Also likely to put a damper on Kazakhstan’s popularity is a law newly signed by the president that will introduce extra taxes for crypto miners starting in 2022.
“This will significantly change the incentives for people to deploy capital in Kazakhstan,” said Brammer.
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