Bitcoin mining is quietly making a comeback in China, according to industry insiders.

CryptoSlate’s Research analyst James Van Straten recently sat down with Ben Gagnon, Chief Mining Officer at Bitfarms, to discuss the evolving landscape of Bitcoin mining and a look at Bitcoin mining in China, along with detailed insights into global miner revenues. It brings to light some interesting thoughts.

Bitcoin and cryptocurrency are headed to 2024.

Gagnon highlighted the upcoming Bitcoin ​​halving event and its potential impact on mining operations. His forecast suggested that the industry would undergo significant change following the halving, emphasizing the need for increased efficiency and cost-effectiveness while remaining incredibly optimistic about the economics of the halving.

“Like all previous halvings, BTC has been rising in price in the months leading up to the halving, but we have never seen a halving with hash prices this strong.”

The potential of Bitcoin ETFs and their impact on the market dynamics driving Bitcoin price were also discussed. Despite rumors that BlackRock is involved with Bitcoin mining companies, Gagnon suspected any direct interaction with miners for ETF purposes. Instead, he suggested investment management firms would likely work with OTC desks on large acquisitions.

“I think Blackrock is probably accumulating. Many people are probably saving money in anticipation of ETFs, but there is no reason to do so through mining machines. They will go straight to the OTC desk.”

The two also discussed another important driver of the mining economy: the increasing mining fees within the Bitcoin network. These fees have risen to levels not seen since May, representing a significant increase. This increase in mining fees is seen as a positive development for the industry, which currently contributes nearly 10% of overall mining revenue. This is especially important considering the upcoming Bitcoin halving event.

The surge in fees, a revenue component for miners unaffected by the halving, has the potential to boost mining economics by up to 20% after the halving if current trends continue.

Bitcoin mining in China.

Gagnon also discussed the impact Canada’s vast underutilized natural resources could have on the industry and touched on the global decentralization of Bitcoin mining, highlighting the emergence of new mining markets, including China.

Gagnon, who spent time operating a cryptocurrency mining facility in China, shared his unique perspective on China’s mining ban and the recent expansion of domestic Bitcoin mining. Gagnon suggested the ban was a politically motivated decision, as opposed to environmental or economic reasons.

“When the Chinese mining ban happens in 2021, I don’t think it has anything to do with Bitcoin itself. “I think it was entirely internal politics.”

Gagnon noted that mining is slowly returning to China as a way to recycle waste inputs, especially heat, for residential and office projects. This approach could reintroduce mining in China with net social benefits and balance business and political interests.

“And I think we’ll see more of that. “This is a way for China to indirectly restart mining and improve the cost efficiency of infrastructure and residential development.”

Bitcoin mining may seem insignificant compared to China’s overall GDP, but Gagnon observed that it has significant potential at the individual business level. Entrepreneurs can see this as an opportunity to improve business efficiency, recycle resources, and diversify revenue streams. This is particularly relevant for China’s real estate sector, which is facing challenges but still represents a significant part of the economy.

Gagnon suggested that real estate developers could find significant value by incorporating Bitcoin mining into their operations to save on heating costs, diversify revenue, and explore new business synergies.

In September 2022, Ethereum completed its transition to proof-of-stake, citing similar environmental concerns. Gagnon also expressed skepticism about the impact of Ethereum’s transition from proof-of-work to proof-of-stake. His concerns about the implications of these changes and questions about their motivations provided a nuanced view of the potential impact on the broader cryptocurrency ecosystem.

“I think that’s the nail in Ether’s coffin. I don’t think that’s the nail in the coffin for Bitcoin… “They have now essentially removed the best quality that we thought Ether had, which was the second proof-of-work chain.”

Mining economics.

When the conversation turned to mining economics, Gagnon provided an analysis of the variables that determine mining profitability. He highlighted hardware costs and energy efficiency as key factors in the success of mining ventures.

“We took full advantage of the opportunity to purchase equipment at the lowest prices in years. You never know what’s going to happen in the market, but our goal is to try and time our purchases that lead to a bull market.”

He highlighted the disadvantages of investing in a bear market trend, pointing out how quickly the value of mining hardware can decline during a bear market.

In 2023, Bitfarms adopted a cautious approach, focusing on infrastructure rather than expansion due to unfavorable market conditions for hashrate growth. This strategy allowed them to build a “solid foundation” and capitalize on opportunities as the market changed. Gagnon believes the recent purchase of 64,000 next-generation Bitcoin miners from Bitmain is an example of this approach and allows for a “complete product line upgrade.” Gagnon emphasized the importance of timing in investment decisions to maximize efficiency and avoid market downturns.

“Last week we announced the purchase of nearly 64,000 Bitcoin miners, Bitmain’s newest Bitcoin mining machines, which will allow us to perform a full equipment upgrade and transform our company.”

He explained that the key to mining competitiveness is managing direct operating costs, which depend on electricity bills and miner efficiency. Gagnon pointed out that as long as energy prices are fixed, these costs remain constant regardless of market fluctuations.

He expects market resistance if mining revenue falls to 4.5 cents per terahash and predicts a change in mining strategy, such as underclocking, higher scaling, and fewer miner purchases. Bitfarms expects the upgrades will achieve direct operating costs of 2.5 cents per terahash, well below the pressure point expected in the market.

Gagnon is optimistic, predicting that 2024 will be a transformative year for the entire mining industry.