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Low electricity tariffs and stable power supply give the United States a strong advantage in the global Bitcoin mining market.
Original title: “The Bitcoin mining industry in the United States will see rapid growth”
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry
2020 is a year of acceleration in the development of encrypted digital finance in the US market, especially in the fourth quarter. PayPal began to provide bitcoin payment and purchase services to its 300 million users worldwide. The listed company Micro Strategy purchased a total of 425 million US dollars in Bitcoin. The asset management company Guggenheim plans to buy up to 500 million U.S. dollars in Bitcoin. Diem (formerly Libra) plans to first issue a USD-based digital stablecoin in 2021. Visa plans to issue credit cards based on the USD stable currency USDC. These actions in the market have pushed the price of Bitcoin to rise sharply again. The position of Bitcoin derivatives on the Chicago Mercantile Exchange has reached the highest in the world. Before the end of 2020, it is a high probability event that Bitcoin reaches a record high of $20,000. Bitcoin’s December 2021 option has a major position of 50,000 USD, which shows the market’s optimism towards the future of Bitcoin.
The increase in Bitcoin price this time is fundamentally different from the increase in 2017. The growth in 2017 was mainly the result of speculation in the market. Due to the unstable foundation, it fell rapidly after reaching a new high. Since 2017, encrypted digital finance has continued to develop in the US market. Developments in some of these areas are largely determined by regulatory policies. The different regulatory policies of different U.S. financial regulators have caused these developments in the U.S. industry to vary greatly. But in areas that are not subject to financial supervision, progress in this area is entirely the result of the market’s own choices. Bitcoin mining is such an area.
In terms of Bitcoin mining, the development of the US market is not leading the world. In view of Bitcoin’s price, volatility and the characteristics of the mining business and the cost to be paid, the US market is not very optimistic about this business. So although the United States is one of the leading countries in this field, it is not the most advanced. However, this situation now seems to change significantly. The U.S. market’s judgment on the development of encrypted digital finance has changed a lot. One result of this is that the price of Bitcoin has risen sharply, and its volatility will be much reduced. The cost of mining each bitcoin is between 5000 and 6000 US dollars. The current price of bitcoin is close to 20,000 US dollars, and the market is generally optimistic about the future growth trend of bitcoin.
A very extreme view in this regard is that of Tim Draper, a famous American venture capitalist. At the end of 2019, he believed that the price of Bitcoin would reach $250,000 by the end of 2022 or early 2023. Tim Draper is a strong believer in Bitcoin, so he has been buying large amounts of Bitcoin early on. His investment direction is consistent with his point of view. In terms of market size, due to expectations of the future price of Bitcoin, the future market size of Bitcoin can meet the basic requirements of many institutions to enter this business field. Finally, the mining business has developed to this day, and higher thresholds have begun to appear. For example, in today’s American market, a capital investment of 100 million US dollars should be the most basic requirement. Due to these characteristics, Bitcoin mining business has become a very viable business for many organizations. In 2019 and 2020, the Bitcoin mining business in the US market has shown a growth trend. As we can see from the following two figures, the global market share of Bitcoin hashrate in the US market has increased significantly during this period.
Bitcoin Global Computing Power Ranking, September 2019
Bitcoin global computing power ranking, April 2020
The main factors that determine Bitcoin mining are electricity prices and the efficiency of mining machines. In terms of electricity prices, the price of bare electricity in the United States can be as low as 3.5 cents, which is equivalent to 0.23 yuan. Such prices are very competitive on a global scale. Another important factor that determines the Bitcoin mining business is the stability of power supply. This is because the Bitcoin system runs uninterruptedly 7×24 hours, and therefore the Bitcoin mining business also needs to run uninterrupted. The American market has a very good guarantee for the stability of power supply, which is very important for mining business. In the capital market, the US market also has a very strong advantage in this regard. Therefore, the Bitcoin mining business in the US market has a very good foundation. But on another aspect, the US market is not the most competitive in terms of construction and operating costs and taxes. But in general evaluation, the United States is a very good choice for Bitcoin mining business. This is why companies like Germany, Canada, and Japan have all started bitcoin mining operations in the United States. In 2020, some companies are already building mines with a production capacity of 300 MW. It is expected that in the next few years, the Bitcoin mining industry in the US market will experience more significant growth.