Bitcoin mining’s silent comeback in China, according to industry insider

Bitcoin mining’s silent comeback in China, according to industry insider

CryptoSlate’s research analyst, James Van Straten, recently sat down with Bitfarms’ Chief Mining Officer, Ben Gagnon, to discuss the evolving landscape of Bitcoin mining, revealing some interesting thoughts on Bitcoin mining in China, along with detailed insights into global miner revenues.

Bitcoin and crypto going into 2024.

Gagnon shed light on the forthcoming Bitcoin halving event and its potential implications for mining operations. His prediction suggested significant industry shifts post-halving, stressing the need for enhanced efficiency and cost-effectiveness but remaining incredibly optimistic about halving economics.

“Just like with all previous halvings, BTC is rising in price leading into the few months before a halving but we’ve never seen hash price this strong going into a halving before.”

The potential of a Bitcoin ETF and its implications for market dynamics driving Bitcoin price was also discussed. Despite rumors of BlackRock’s involvement with Bitcoin mining companies, Gagnon doubted their direct interactions with miners for ETF purposes. Instead, he suggested the investment management firm would likely work with OTC desks for large-scale acquisitions.

“I do think Blackrock is probably accumulating. I think lots of people are probably accumulating in anticipation of an ETF, but there’s no reason to do that through a miner. They’ll just go directly to OTC desks.”

The pair also discussed the escalating miner fees within the Bitcoin network, another significant driver of mining economics. These fees have elevated to levels unseen since May, indicating a considerable increase. This rise in miner fees is considered a positive development for the industry, contributing nearly 10% of all mining revenue now. This is especially important given the coming Bitcoin halving event.


The fee surge, a revenue component for miners unaffected by the halving, could potentially strengthen mining economics post-halving by up to 20% if current trends continue.

Bitcoin mining in China.

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

Gagnon, who spent time operating crypto-mining facilities in China, shared his unique perspective on the country’s mining ban and the recent expansion of Bitcoin mining in the nation. Contrary to attributing the ban to environmental or economic reasons, Gagnon suggested the decision was politically motivated.

“When the China mining ban happened in 2021, I really don’t think it had 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, notably heat, for residential and office projects. This approach allows for reintroducing mining in China as a net social benefit, balancing business and political interests.

“And I think we’re gonna see a lot more of that. It’s a way for China to bring back mining indirectly and improve the cost efficiency of infrastructure and residential developments.”

While Bitcoin mining might seem insignificant regarding China’s overall GDP, Gagnon observed that it holds significant potential at the individual business level. Entrepreneurs might see it as an opportunity to improve business efficiency, recycle resources, and diversify revenue streams. This is particularly relevant in China’s real estate sector, which has faced challenges but remains a significant part of the economy.

Gagnon suggested that real estate developers could find significant value in integrating Bitcoin mining into their operations to economize on heating costs, diversify revenues, and explore new business synergies.

In September of 2022, Ethereum, citing similar environmental concerns, completed its transition to Proof of Stake. 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 this shift and questioning its motives offered a nuanced viewpoint on its potential impact in the broader crypto ecosystem.

“I think it is a nail in the coffin for Ether. I don’t think it’s a nail in the coffin for Bitcoin… they’ve now gotten rid of, fundamentally the best quality that I thought Ether had, which was being a second Proof of Work chain.”

Economics of mining.

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

“We’ve fully taken advantage of the opportunity to acquire equipment at some of the lowest prices in years. While we never know what will happens with the market, our goal is to try and time purchases leading into bull markets.”

He emphasized the disadvantages of investing in a downward market trend, noting how quickly the value of mining hardware can depreciate in a bear market.

In 2023, Bitfarms adopted a cautious approach, focusing on infrastructure rather than expansion due to unfavorable market conditions for growing its hash rate. This strategy allowed them to build a “solid foundation” and capitalize on opportunities when the market shifted. Gagnon believes the recent purchase of 64,000 new-generation Bitcoin miners from Bitmain exemplifies this approach, enabling a “complete fleet upgrade.” Gagnon highlighted the importance of timing in investment decisions to maximize efficiency and avoid market downturns.

“Last week we put out our announcement that we bought nearly 64,000 Bitcoin miners, the newest generation Bitcoin miners from Bitmain and that’s gonna allow us to do a complete fleet upgrade and transform the company.”

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

He anticipates resistance in the market if mining revenues drop to 4.5 cents per terahash, predicting changes in mining strategies like underclocking, higher curtailment, and reduced miner purchases. Bitfarms has positioned itself with an upgrade, which it expects will achieve a direct operating cost of 2.5 cents per terahash, significantly lower than the anticipated pressure point in the market.

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

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