Bitcoin Mining Power Battle About To Be Started In Sichuan

Every year around April, when the ice high up in the mountains of China South western’s province Sichuan starts melting, over 1,400 rivers in the area become more and more active and lead the water to lower points. In Chinese referred to as 丰水期 (Fēng shuǐ qī), the abundance of water is driving the 3,267 large and small hydropower plants to roar. The period between April and October is a great temptation for Bitcoin miners, as hydropowers is obviously one of the cheapest power sources.

In 2018, the cascading decline of cryptocurrency caused a large number of miners to leave the market. They chose to “acknowledge the loss”, sell the mining machines for a low price and leave the market. At the same time, a large number of miners used this opportunity to add the second-hand bitcoin mining rigs to their existing operations. Now the miners are fully prepared for the “Fengshui” season to arrive, Sichuan will soon turn into the main battlefield for hydroelectric power.


Losing 40 million RMB

“The top ten bitcoin mines in China have generally lost more than 10 million US dollars in 2018.” Liang Chen told Chinese blockchain media 31QU.

Liang Chen is the owner of an online game company in Beijing. At the end of 2017, he was attracted by the bitcoin mining boom. He ordered 5,000 Antminer S9 units and obtained a “mine owner” status.

At that time, the price Liang Chen had to pay was 15,000 RMB ($2,200) per rig. Later, the price of the Antminer S9 rose to around 20,000. “I am glad that I started quickly.”

According to Bitmain’s IPO prospectus, in 2017 and the first quarter of 2018, Bitmain sold over 1.8 million Antminer S9’s. At that time, it was even hard to get your hands on new ones and often had to wait for weeks. While waiting for the mining machines, Liang Chen contacted locations where his mining machines could be installed.

“In Xinjiang the electricity cost are 0.33 Yuan / KWh under the condition of signing a contract for 18 months, in Inner Mongolia 0.4 Yuan / KWh for only a six-month contract.” Liang Chen told 31QU, “Electricity charges have too much impact on mining revenue. In order to get the most out of it, I decided to go for the the location in Xinjiang and paid some deposits.”

In the first quarter of 2018, the 5,000 Antminers S9 scheduled for Liang Chen were delivered. At that time, the price of Bitcoin was still about 14,000 US dollars, and since I thought that I had managed to arrange a “low-cost electricity bill” and “low-cost mining machines”, I was confident when I started mining and could see all the profits coming.

The illusion of Liang Chen was quickly shattered by the brutal fall of Bitcoin’s price, and just earning back the amount he invested suddenly became challenging. After experiencing another collapse of Bitcoin’s price in November last year, Liang Chen completely gave up the idea of earning his money back.

“Based on the current bitcoin price, my S9 earns only one RMB per day. It will take more than 30 years to get my investment back.” Liang Chen said.

Liang Chen’s statements don’t come as a surprise. According to some mining pools, bitcoin’s current price in combination with an electricity price of 0.4 Yuan / KWh and the difficulty to mine at the moment, makes it almost impossible to keep mining, as the electricity alone would make up 95% of the total cost in case of a Antminer S9.


In 2018, the market was flooded by “newbie miners” like Liang Chen. Many well-known domestic and foreign investment institutions and commercial giants also poured money into the mining industry. They continue to pit in a “small step” way, and most of their investment has become a high “tuition fee.”

“I lost about 40 million RMB ($5.9 million).” Liang Chen told 31QU, further mentioning that he will evaluate soon on what to do with his mining rigs.

Like Liang Chen, many miners will have to ask themselves “Should I continue mining or take my losses and sell the machines?

Temptation during the meltwater season

At the time that Liang Chen and others are considering to leave the mining industry, others are looking for opportunities to expand their mining operations with the, often low-priced, second hand mining rigs.

“I am greedy when others are fearful.” says Song Li, who is currently collecting second-hand mining machines.

“I am preparing for the Sichuan meltwater season, and the second-hand mining machines come at a perfect time”, Song Li told 31QU.

According to Song Li, Sichuan’s meltwater season generally begins in April of each year, and hydropower is most abundant from May to October. During the meltwater season, the electricity price of the hydropower stations in Sichuan Province is basically only 0.1 RMB.

In fact, for the mines located in Sichuan, the lack of electricity during the dry season is an important reason for the large-scale “shutdown” of mining machines at the end of last year. However, the cheap electricity bill in the wet season is a huge temptation for miners.

How important is the low electricity bill for miners? The mining machine price, Bitcoin price, mining difficulty, and electricity bills determine the mining revenue of the miners. The first three variables of miners are difficult to control, and thus finding relatively inexpensive power resources is crucial for miners to be profitable.

Take the Antminer S9, which is the most used in the market, as an example. The effective calculation of the S9 is 14TH/s, the power consumption of the mining machine is 1356W, and the handling fee of the mining pool is 4%. Assuming that the difficulty of mining of the whole network is constant, the electricity bill has a serious negative correlation with the mining profitability. For every 1% increase of the electricity price, the mining profit will be reduced by 15%. When the electricity fee reaches 0.42 Yuan / KWh, the mining profit is almost 0.


The mining revenue decreases rapidly with the increase of electricity cost. When the electricity fee reaches 0.45 Yuan/KWh, mining is no longer profitable. This is the fundamental reason why miners are “sharping their heads” to find cheap electricity. “Someone ran to Iran to mine in 2018.” Song Li said.

Song Li calculated his potential profit: “The price of electricity in the meltwater season is only 0.1 Yuan. I will collect about 800 mining machines, and it will take three months to earn my money back.”

A second-hand Antminer S9 sells for only 800 RMB ($120). Liang Chen also confirmed this number to 31QU. “Now I can sell 800 pieces of this type of second-hand mining machines, but if I continue to mine in Xinjiang, I may earn 800 per machine more. It is difficult.”

In the face of the upcoming Sichuan meltwater season, Liang Chen said that he “does not want to go through a lot of hassle again” and he chose to sell the miners at a discount. “The meltwater season may be a fierce battle, I choose to avoid the war.” Liang Chen told 31QU.

The market is cruel, some miners have spent and lost so much money in last year’s computing power war, and some miners are gearing up to buy second-hand mining machines for the upcoming Sichuan meltwater period.

Fierce battle

Why is the meltwater season a tricky fight to be part of? Apart from the attractive low price of electricity, there is currently too much uncertainty in the bitcoin mining market.

The soaring Bitcoin computing power is the result of the operation of millions of mining machines day and night. The rapid decline in computing power in recent weeks means that a large number of mining agencies have withdrawn, including small investors like Liang Chen and the top mines in the United States such as Giga Watt.

On October 4, 2018, after the computing power of Bitcoin reached a peak of 53.33 EH/s, it fell to the current 42.10 EH/s, which was reduced by 11.23 EH/s from the highest peak. This is the equivalent of 830,000 Antminer S9’s.


“70% of the mining machines in the whole network are from Bitmain, and 70% of the mining machines in Bitmain are Antminers S9, indicating that at least 580,000 S9s have been shut down since then.” Long Xin, the head of operations of a Bitcoin mining pool told 31QU. This means that there may be 580,000 S9 miners waiting for the meltwater season to begin.

“S9 is a mining machine on the edge of the shutdown, which requires low electricity bills to operate. The acquirers in 2018 are generally large miners with low-cost domestic electricity. Or miners who have successfully developed low-cost electricity abroad.” Long Xin said.

Some people may ask, according to 0.4 Yuan/KWh, can these S9s still earn 1 RMB a day? However, mining is not a simple plus and minus operation, and mining revenue is also related to the overall network computing power.

“The income per day can’t be maintained for too long. The difficulty of the whole network is adjusted once every 14 days, and the decline in revenue is very fast. The overall trend is that high-priced electricity bills are not competitive.” When talking about the reasons for some profitable miners withdrawing Long Xin told 31QU.

In fact, a large number of second-hand mining machines that were sold also led to the new Antminer S9 “discount promotion”.

“The new S9 mining machine has 700 RMB discount coupons. After that, it will be 5% off.” A sales representative from Bitmain told 31QU when introducing the sales of the Antminer S9 mining machine.

The threat from the new mining machines

In November 2018, the Antminer S15 was launched. As a brand new 7nm mining machine, the S15 has the ability to push the industry to the next level. However, due to the high price of new mining machines and the downturn in the mining market, combined with the S9 dominating the market, the willingness of miners to purchase new mining machines is not high.

As a result of increased scrutiny on cryptocurrencies in China and other countries and the decline of Bitcoin, the price of a Antminer S9 also continued to decrease. If we compare the bitcoin price and the price of a S9 over the course of one year, one can clearly see a strong correlation.


The same applies to Bitmain’s S15. At present, the official price of the model of the mining machine is 9625 RMB ($1430), but many miners told 31QU that the actual price they could purchase the machines for is only 6,000 RMB ($890).

“There are many customers who buy second-hand S9s at present. However, taking into account the discounted price for a S15, one can earn that back within 13 months, compared to 12 months with a S9. In case of more than 200 S15s, the price can be as low as 6680 RMB per machine.”


Can the ant S15 really do 13 months back? Assuming that the electricity fee is 0.3 Yuan/KWh, the mining difficulty is 5.8T, and the mining machine costs 6680 Yuan, the mining machine’s return period is indeed 13 months.

Considering the above, it seems that the large-scale acquisition of second-hand mining machines might not be a profitable business. However, Song Li remains confident. “I am not optimistic about the new mining machines. From the perspective of product maturity and market acceptance, the S9 is still the best choice.” When talking about the potential “threat” of the new mining machine, Song Li said, “There’s little competition in this industry.”

Of course, the reason for Song Lijun’s purchase of the second-hand mining machines is not just to wait for Sichuan’s cheap hydropower.

“I purchased between 18,000 and 20,000 mining rigs before. Now I can add another few hundred machines very cost effective. Besides, when the market gets better in the future, many people will start looking for mining machines again and I can sell them again for a good price”, Song Li told 31QU.

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