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8 trends that will shape bitcoin mining in 2022

15 min reading

Here are the 8 trends which will decide the future of bitcoin mining in the year 2022.

Bitcoin mining https://www.freepikcompany.com/legal

If you think 2021 is going to be a wild ride to dig into cryptocurrencies, you'd better stick with 2022.

Last year was one of the biggest upheavals in mining history. Some Chinese miners have had to find new residences due to the country's most stringent regulatory measures to date, while an ongoing global chip shortage has limited the capacity of new mining machines worldwide. But thanks to these developments, North American miners had a great year. With China out of the game and orders for their machines, the United States and Canada are rapidly rising to become the undisputed hashrate capitals of the world. When the price of Bitcoin reached its historical high, the profit margin on digging rose up to 90%. The industry is entering a "gold rush," said Amanda Fabiano, director of mining at Galaxy Digital, New York, citing the miners' high profitability.

At the same time, more subtle changes have occurred. “Mining appears to have crossed a very risky and unsafe line,” said Didar Beckbau, co-founder and CEO of Kazakhstan-based mining company Xive. The global industry is increasingly becoming a traditional business where risks are lower and investors are spending money and are willing to wait two or three years to see returns, he added. However, the digital asset industry landscape will once again change significantly in 2022 as the slowdown in the supply of new mining equipment returns to normal and competition intensifies.

“More and more miners enter the sector, margins tend to shrink, especially for beginners, while Bitcoin price stagnates,” added Fabiano. As competition intensifies over the next year, some miners will experience reduced margins, which will lead to increased potential for mergers and acquisitions. "I think in the not-too-distant future there will come a time when there will be companies that have raised money, ordered and haven't implemented machines that are in crisis," said Fred Teal, CEO of Marathon Digital the Biggest listing bitcoin tombs. “When that happens, you get a lot of exciting opportunities because you don't have to integrate companies now; They only get their wealth," he added.

This is certainly not bad news for the industry in the long run. More consolidation and competition will not only make the industry more mature, but also help usher in an era of more efficient mining operations and promote the use of renewable energy sources. "With the expansion of market boundaries in general, such a positive feedback mechanism will move the bitcoin mining industry into a more competitive and dynamic phase," said Edward Lou, vice president of Canaan, one of the world's largest bitcoin mining machine manufacturers.

Also read: Binance Singapore decides to withdraw the application of crypto license

Doubling the hashrate

This is unanimous; The hashrate for the Bitcoin network will increase significantly over the next year. Some estimates predict that it will double as more miners join the network. The hash rate is a measure of the computing resources used to explore and protect bitcoin blockchain activity and is a leading indicator of competition. Along with the new additions, Chinese miners who have left the region are back online outside of China and will continue to do so for the next year. This will increase the hashrate, and therefore network difficulties, according to April Luo, Asian institutional sales representative at BlockFi, a company that provides structured financial products to miners, and has also begun exploring collocations with Blockstream.

Yuri Bulovic, Vice President of Strategy at Foundry Digital, a bitcoin mining pool in North America, reiterated his point of view, saying, “Digging difficulty will continue to increase, surpassing all-time highs next year as miners expand their activities... but also, through improving the efficiency of the latest generation of mining machines. In fact, some industry players are calling for hashrates in the 300-350 exahash/sec (EH/s) range by the end of next year, which will be 70-100% higher than around 179 EH/s on Dec. 14. , according to Glassnode analysts.

One of those observers is Rob Chang, CEO of Bitcoin miner Gryphon Mining, who believes the hashrate could reach 300 EH/s by the end of 2022. Ben Gagnon, CEO of mining Bitfarms, expects a hashrate of between 300 and 350 EH/s by the end of next year. Beckbau of Xive also assumes that the hashrate will double by 2022.  BitFin-based BitFuFu CEO Leo Lou doesn't expect growth to kick off before March, however, as miners in Kazakhstan will likely continue to face power rationing as new US and Russian operations slow over the winter. Meanwhile, Chinese authorities are increasing repression in the country and actively blocking mining pools.

Edge compression

As hashrate and difficulty increase, miners have to work harder to stay profitable as long as there is no dramatic change in Bitcoin price. "If our top-of-the-line 300 EH/s scenario were to come true, doubling the global hash rate would effectively cut the reward for digging in half," said Chang of Gryphon. As competition undermines miners' high margins, companies that can keep costs down and run efficient machines will survive and stand a chance of success.

“Miners with low cost and efficient machines will be placed in the best position, while those working with older machines will find it more difficult than others,” Chang added. New miners in particular will be affected by lower margins - and there are plenty of them. Electricity and infrastructure are one of the main cost considerations for miners. New entrants find it harder to access them cheaply due to a lack of connections and increased competition for resources.

“We expect inexperienced players to achieve lower margins,” said Danny Zheng, vice president of crypto miner BIT Mining, and cited costs such as electricity and data center construction and maintenance. Miners like Argo Blockchain will seek excessive efficiency as they expand their operations. With competition increasing, “we have to be smarter at what we do,” said Peter Wall, CEO of Argo Blockchain. “I think we're in a different supercycle than the previous cycle, but we still have to follow rewards that are very efficient and have access to cheap energy,” Wall added.

M&A Upgrade

As hashrate wars emerge as winners and losers, the larger, more capitalized companies tend to swallow the smaller miners struggling to keep up. Teal von Marathon expects that consolidation to pick up in mid-2022 and beyond. He also expects the well-capitalized Marathon, which raised nearly $700 million, to grow aggressively over the next year. This could mean getting smaller players or continuing to invest in your own hashrate. Hut 8 Mining, which recently completed a $173 million public offering, is poised to follow the same book. "We've received the money and are ready to go no matter how the market goes over the next year," said Sue Ennis, head of investor relations for Canadian miners.

Apart from big miners, Argos Wall said there is a possibility that big companies such as energy companies and data centers will also face buyers when the industry becomes more competitive and miners are faced with a margin crisis. Several of these traditional companies have been digging in Asia, including Singapore-based real estate developer Hatten Land and Thai data center operator Jasmine Telekom Systems. Gobi Nathan of Malaysian miner Hashtrex said that "Southeast Asian companies are looking to build large factories in Malaysia next year".

Similarly, Europe-based Denis Rusinovic, co-founder of Cryptocurrency Mining Group and Maverick Group, looks at trends in mining investment across sectors in Europe and Russia. Companies see bitcoin mining as being able to subsidize other parts of their business and improve their overall performance, Rusinovic said. In Russia, the trend is clearly visible in energy producers, while in continental Europe there is a tendency to own small mines that integrate waste management with mining or use small amounts of stagnant energy, he added.

Cheap electricity and ESG

Access to cheap energy has always been one of the main pillars of a profitable mining business. However, with increasing criticism of the environmental impact of extraction, it has become increasingly important to provide renewable energy sources to remain competitive. “We believe that in the next year more mining companies will follow the trend to produce energy sources that are carbon neutral or renewable as ESG [environmental, social and governance] compliance remains mandatory for most technology companies,” said Igor Runets, CEO of BitRiver., a hosting provider for green cryptocurrency mining.

Miners are already in the process of adding sustainable energy sources, including solar, wind, hydro and nuclear, to their operations to reduce their carbon footprint. A recent study by the Bitcoin Mining Council, an industry forum, found that in the third quarter of this year, 58% of all energy used in crypto mining worldwide was sustainable, 3% more than in the second quarter. This increase is partly due to the rapid expansion of production in North America as the exodus from China and miners shift to more sustainable energy and modern extraction techniques. As mining becomes more competitive, “energy efficient solutions will become a key factor in the game,” said Arthur Lee, founder and CEO of Saitech, a clean energy digital asset operator based in Eurasia. “The future of cryptocurrency mining is driven and underpinned by clean energy, which is a direct path to carbon neutrality and the key to reducing global power shortages while increasing miners' return on investment,” added Lee.

In addition, there will likely be more energy efficient miners, such as Bitmain's new Antminer S19 XP, which will also join the game, making businesses more efficient and less environmentally friendly. However, efforts to create a more sustainable business model for the mining sector should not be limited to clean mining, but should also include the “social” part of ESG. As new miners enter states like Georgia, Texas, and New York, community engagement in these regions will become even more important over the next year, according to Zach Bradford, CEO of Bitcoin Miner CleanSpark. “I think community engagement will be very important [2022]. You will be in the community you are in or you will be outside,” he said. "Especially because some non-US bands are coming, I think they're going to have a harder time than the US companies," he added.

Also read: Compromised hot wallets from BSC, ERC-20, and Polygon cost AscendEX $80M Loss.

Fast money against valuable investors

One of the main reasons many new players enter the crypto mining sector is because of the high margins and support from the capital market. There have been many new IPOs and financing from institutional investors in the mining sector this year. As the industry matures, this trend is expected to continue into 2022. "Capital markets will continue to seek investment in bitcoin and miners," said Gagnon of Bitfarms. He points out that pre-IPOs seem a lot easier for investors in the industry as far as many are looking for a quick turnaround. However, long-term investor value prospects are still unknown as it is still largely an untapped market, he added.

Investors are currently using miners as proxy investments for Bitcoin. But as institutions become more experienced, they will change the way they invest in mining, according to Chang of Gryphon. "We found that they focused more on the things that institutional investors have traditionally emphasized, namely: quality management, pilot performance, and companies acting as blue-chip organizations [holders] rather than equity promoters," he said. But the more traditional finance relies on cryptocurrencies, the more control the sector has. "It's not that red. "This is a positive development in the industry, but we need to be aware of other developments, such as interest in short selling," Rusinovic said.

Another trend that is likely to increase among miners is the shift to structured financial products as they increasingly seek to secure margins, generate additional revenue from mined coins, and protect the evolving competitive landscape, according to BlockFi's Luo.

Supply chain: Great uncertainty

Discussions about the prospects for crypto miners will not end without assessing the problems in the supply chain that have been a major barrier to the industry this year and are likely to extend into 2022.

"The shortage of chips is one of the defining issues in the supply chain for 2021," said Philip Salter, chief technology officer of Genesis Digital Assets. Driven by the impact of Covid-19 on world trade, as well as rising geopolitical tensions between the US and China, the global shortage of chips is affecting 169 industries, ranging from from cars to soap making.

CEO of Blockware Mining Inc. Michael Stolzner stated that excavation orders placed directly by the manufacturer before 2021 will be delivered within six weeks. New large orders are now confirmed, and the manufacturer's order book is full in 2022 and even 2023. Blockware Mining addresses this issue by planning ahead and identifying the best ways to address supply chain challenges for miners looking to increase production.

However, the industry is divided as to whether the chip shortage will be resolved by 2022. "I expect the supply chain to improve, maybe mid-year, let's say June, July," said Bradford of CleanSpark. He currently sees the shrinkage in the supply chain as stronger, as holiday-related supplies have a higher priority. If supply chain issues are resolved in the next year, smaller and newer companies currently facing challenges could quickly enter the industry and compete with bigger miners, said Jonathan Manzi, CEO, CEO and co-founder of Beyond Protocol, a blockchain technology company. .

On the other hand, Chang expects Gryphon supply chain bottlenecks to last until at least mid-2023, as the chipmaker says the global semiconductor shortage will last until 2023 and when chipmakers finally manage to resume normal supply, the larger industry will favor mobile phones, medical devices. equipment and transportation will come first before bitcoin miners are full, he added. But apart from the availability of the platform, where to place it will be an obstacle. Both BitFuFu and BlockFi have identified luggage space as one of the key constraints for the year ahead; Luo BlockFi specifically highlights this issue in the United States.

Also read: Virtue Gaming introduces Crypto model for play-to-earn poker in the USA

The life of both platforms

After mining stopped in China and the subsequent migration, thousands of mining facilities in the country were abandoned. While many have been shipped overseas, others have yet to be picked up and used in the second-hand market. Few miners will find second-hand opportunities in this market by 2022, even if the facility doesn't have the latest technology. “This definitely gives some players a lot of opportunity to grow their hashrate,” said Rusinovic, adding that “people have been saying S9 [outside of games] for a few years but they are still available.”

Going forward, the new mining equipment will initially be deployed in areas with "stable laws and regulations and developed infrastructure" such as the United States and Europe, BitFuFu said. Meanwhile, the worse facilities from these countries will flow to Kazakhstan, Southeast Asia, and other crypto-friendly places with less developed infrastructure. Old mining facilities are being installed in Russia and Africa and face certain political and regional risks. All of this can create new opportunities.

"It's a matter of risk, you don't want to send the S19j pro to a country where it might be lost or shut down," but the S9, which costs a lot less, is easier to lose, says Alejandro de la Torre, founder of consulting firm ProofofWork.Energy.

New technology in mining

As efficient digging becomes a more important tool in giving miners an edge over the competition, companies will not only focus on better mining computers, but also on new innovative technologies to maximize their overall profit. Miners today use technologies such as immersion cooling to increase productivity and reduce excavation costs without purchasing additional computers. "In addition to reducing energy consumption and noise pollution, the liquid-cooled immersion miner takes up much less space, and no pressurized fans, water curtains, or water-cooled fans are needed to achieve a better heat dissipation effect," says Lou from Kanaan. This technology will be able to increase the efficiency of mining machines and the entire facility.

Recently, CleanSpark purchased a 20-megawatt submersible refrigeration infrastructure for its Bitcoin mining facility in Norcross, Georgia and aims to increase extraction efficiency by more than 20%. Riot Blockchain, one of the world's largest bitcoin miners, also said in October that it plans to increase its mining hash rate to 50 percent with its 200-megawatt immersion cooling technology at its Winston, Texas facility.

 

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