The US has consolidated its position as the leading destination for global Bitcoin mining, demonstrating a wider shift from East to West, according to new data. The Cambridge Bitcoin Electricity Consumption Index (CBECI) May 2022 update showed a drop of up to 40% in the global hashrate – the computational power per second required for mining – after the Chinese government’s crypto mining ban in June 2021. This was followed by a global recovery led by the US, which now accounts for more than one-third of all global mining activity.
Against the backdrop of a spectacular crypto crash, which saw the sector lose $600bn in value during the first week of May 2022, it seems that although Bitcoin has lost none of its volatility, mining operations continue to show remarkable resilience against changing social and political landscapes.
The CBECI’s new data runs from September 2021 to January 2022 and shows that China’s overwhelming lead position in global mining has ground to to a halt, followed by an uptick in US operations, which now account for a 37.84% share of the global hashrate. Perhaps more surprising, however, is the illicit re-establishment of a crypto mining sector in China, which represents a signification proportion of the global hashrate (21.11%).
While mining operations have shifted towards the West, Kazakhstan is still holding its own, despite its global share falling to 13.22% by January 2022, from 17.7% in September 2021. It remains to be seen what happens to the country’s mining operations after rising fuel prices and civil unrest in January 2022 prompted authorities to shut down parts of its energy grid. Some sources, such as BTC.com, say the country’s global proportion of mining has fallen as low as 8%.
While initially capturing some of China’s emigrating operations, Russia only had 4.66% of the global mining hashrate by January 2022 – and it is unclear, yet, what effect Russia’s invasion of Ukraine will have on the sector. It would be a natural fit for Russia to mine more Bitcoin and it is surprising this has not happened, according to Charlie Spears, Oklahoma-based founder of Bitcoin mining company Nakamotor Partners. “Russia began exporting energy as its core commodity and has done for many for years, so it would be a natural pivot," he says. "[It would also lead to] Russia looking to challenge US dollar hegemony.” All the incentives lie in Russia's lap to build more Bitcoin mines, but it remains to be seen how that plays out post-conflict, adds Spears.
Bitcoin mining shows resilience against global stresses
With so many cryptographic assets failing stress tests such as the China ban, Bitcoin has shown tremendous elasticity with regard to its security and incentive model, according to investor Miko Matsumura, a general partner at Gumi Cryptos Capital. “Bitcoin is able to automatically adjust the difficulty of mining to accommodate these situations," he says. "The China ban was about as existential of a stress test as can be imagined, short of a global concerted ban, and the blockchain adapted and came back stronger. Not all assets have shown such flexibility, reliability and security.”
However, Bitcoin has been shown to be far from reliable and secure in its price fluctuations – the latest of which saw it fall 24% in price in a dramatic market sell-off in April 2022. What will the knock-on effect of this market trough be for the Bitcoin mining sector? Price decreases in Bitcoin do put some pressure on smaller miners, which are forced to sell to deal with operational costs, according to Matsumura. “But that is why large-scale mining operations have sprung up, because they have more liquidity and stronger balance sheets and can simply hold the assets until there is a more advantageous time to sell,” he adds.
Colorado-headquartered Riot Blockchain, one of the largest publicly traded Bitcoin mining companies in the US, is one such large-scale operation and an example of the more general expansion of the sector in the US. In April 2022, the company announced a one-gigawatt, $333m development to expand its Bitcoin mining and hosting capabilities in Navarro County, Texas. Then, in April 2022, Mawson Infrastructure Group announced that it will develop a new 120-megawatt Bitcoin mining facility in Texas. This followed a 230-megawatt expansion in March of the company’s facility in Sandersville, Georgia.
While data on Bitcoin mining's expansion in the US is still difficult to gather due to the fluidity of the sector, GlobalData's company filing analytics found that the number of mentions of Bitcoin mining in company filings in 2021 reflected the growing shift of operations to North America and, in particular, the US and Texas.
At a state level in the US, the CBECI report showed Georgia as the Bitcoin mining front runner, with three states accounting for more than half of the country’s overall hashrate (Georgia 30.76%, Texas 11.22% and Kentucky 10.93%). The report suggests that access to comparatively low-cost electricity, available hosting capacity and the enactment of favourable legislation may be factors explaining the influx of miners to those states.
Private investment is driving the expansion of Bitcoin mining, and in a lot of cases it is neither incentivised by the state nor actively discouraged. Expansion in the US following China’s crypto ban was enabled by an abundance of private capital seeking exposure to Bitcoin. In addition, states such as Texas and Georgia have favourable energy regulation on a state level and are likely to see investment in the sector increase, heralding a new era of mining ‘out West’.