China is once again making waves in the world of bitcoin.
Last month, Chinese regulators banned bitcoin mining across the country, shutting down an estimated 90% of its mining operations. This caused the number of bitcoin miners to drop significantly… while adding to the recent surge in bitcoin’s volatility.
In the short term, the crackdown is causing bitcoin’s “mining difficulty” to drop at a record pace… which will likely boost profits for miners outside China.
Today, I’ll explain what you need to know about bitcoin mining… and look at who’s poised to benefit from this developing situation.
As a reminder, bitcoin depends on a massive network of computers located all over the world.
These computers verify transactions by solving complex equations. When successful, they are rewarded with some bitcoin. This is how new bitcoins are created… The process is called “mining.”
Anyone can set up a computer to mine bitcoin. But the vast majority of mining comes from massive operations with hundreds—or even thousands—of specialized machines.
The more computers on bitcoin’s network, the faster and more secure it is. But it also means more competition between the miners… which increases the difficulty of mining.
The simplest way to check mining difficulty is by looking at the hashrate. Hashrate is a measure of computational power on the network. Put simply, it measures how many calculations are happening per second. (Currently, it’s around 90 “exahashes”—or a quintillion hashes—per second.)
China’s crackdown on miners has crushed bitcoin’s hashrate.
As you can see from this chart, the hashrate plunged about 50% from its peak in mid-May. That means there’s about half as much bitcoin mining happening now vs. a few weeks ago.
The lower the hashrate, the easier it is to mine bitcoin. The bitcoin network is designed to keep the mining rewards steady (the target is around one bitcoin every 10 minutes). Last weekend, the network made its biggest adjustment ever, making mining about 28% easier.
It’s obviously a complicated topic. But the important takeaway is bitcoin miners are about to see their profits surge.
China’s mining shutdown means the remaining bitcoin miners (outside of China) will get to collect a bigger piece of the pie, so to speak. And this favorable environment should last for at least the next quarter… or possibly longer, depending on how long it takes for the shuttered miners to move their operations to a different country.
One of the likely winners from the situation is Marathon Digital (MARA). Last week, the company released an update on its bitcoin mining operations for June 2021. Its mining unit generated 265.6 bitcoins in June—a 17% increase from May.
Of course, the increase is offset by the pullback in bitcoin’s price. But overall, Marathon and other miners are set to come out ahead as competition decreases.
During the second quarter (Q2), MARA generated about 654 bitcoins. That’s an increase of over 240% from the previous quarter, when it generated around 191 bitcoins.
Marathon’s growth isn’t entirely related to the China crackdown. The company has been steadily building out its mining capacity by installing more machines.
The buildout comes at a great time… as it’s poised to capture a bigger chunk of the market now that so many Chinese miners have had to shut down.
It’s a situation worth paying attention to. With favorable mining conditions, companies like MARA will likely post strong results. Other miners to watch include Hive Blockchain Technologies (HVBT) and Riot Blockchain (RIOT).
We’ll know more over the next few weeks, as more companies provide updates on their mining operations.