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2021 Review in Bitcoin Mining

2021 was an important year for Bitcoin mining. The third halving in May 2020 brought wider attention to mining in general, and the growing interest has never gone away. In 2021, favorable economic conditions made mining profitable for almost all participants, attracting more and more participants. The rise of flare gas, Elon Musk’s comments about Bitcoin’s ESG footprint, the creation of the Bitcoin Mining Council, and a Western migration accelerated due to Chinese regulations all contributed to a rapidly growing and shifting mining landscape characterized by more transparency . Despite all the attention the historically opaque market received last year, volatility, regulation and supply chain disruptions made 2021 one of the more surprising years in Bitcoin mining history, and one of the most formative. Today’s mining ecosystem Several verticals, including brokerage, off-grid mining, and hosting, saw significant numbers of new entrants. Most notably, the sector has seen significant capital inflows through a record number of public listings, driven by the demand for liquidity and capital that only the US public markets can provide.Source: Galaxy Digital2021 Trends In Bitcoin Mining Going Into 2022Mining Profitability In 2021 Benefited from a combination of bitcoin price hitting new all-time highs and idiosyncratic events such as the convergence of the global chip shortage and a mining ban in China. Despite the China ban, we witnessed a V-shaped recovery in the hash rate, closing the year near record highs, and significantly higher than where it started the year. In 2022, at Galaxy Digital, we expect hash rate to grow significantly, and operating margins to compress if price remains constant. Given the amount of hash rate on order by public miners, we expect the price hash rate to continue to disrupt. We see that by the end of the year the network hash rate is somewhere between 300 exahashes per second (EH/s) and 370 EH/s, with a base estimate of 335 EH/s. Even with forecasts of strong hash rate growth, it is likely that many of the publicly traded miners will still remain highly profitable.Source: Galaxy DigitalIn early 2021, securing machines was a major bottleneck due to supply chain disruptions and a worldwide chip shortage. With BTC trading high in 2021, ASICs were in high demand and long lead times became standard. The secondary market, which trades relatively thinly, reflected a sharp rise in ASIC prices.Source: Galaxy DigitalWhile Chinese miners and hardware manufacturers as well as international competitors had expanded their operations outside the country as early as 2021, the floodgates opened when China announced a mining ban in May. This ban fueled massive growth in Kazakh, Russian and US mining operations, while drastically decentralizing the network from China, and also significantly boosted profitability for the miners staying online. The United States was already gaining market share before the ban as a result of its superior regulatory and financial infrastructure, but at the beginning of 2021 the US was still a frontier mining market. After Prohibition, North America quickly became the center of the mining industry, with an increasing number of miners tapping the public markets for both debt and equity financing, usually after selling shares in private markets. At the beginning of 2021, there were only two bitcoin mining companies listed on the NASDAQ, Marathon Digital (MARA) and Riot Blockchain (RIOT), with several others trading on the Canadian TSX Venture exchange. As of late 2021, 16 bitcoin mining companies were listed on the NASDAQ, with seven additional lists pending. Source: Galaxy Digital As the industry becomes more competitive and economies of scale become more important, we expect to see even more mining companies attempting to take advantage of the unparalleled liquidity in the public stock markets and use the capital raised to invest in additional equipment and infrastructure building . This trend will be particularly pronounced if the BTC price remains high enough for most miners to continue to operate profitably. In the event of an ongoing downturn in the market, a spike in M&A activity seems likely as bigger and leaner miners opportunistically buy less efficient competitors for hard assets like machines and transformers.Source: Galaxy DigitalWith more bitcoin mining companies now on The US-listed exchanges have opened up reporting requirements for public companies for industry participants to gain important insights into Bitcoin mining. One of the biggest benefits of having many publicly traded miners is that it makes it easier for researchers to estimate the future growth of the hash rate and the dominance of the ASIC market by viewing press releases detailing companies’ machine purchase orders. are described. Source: Galaxy Digital We expect the hash rate share contributed by publicly traded bitcoin miners to increase to 40% to 45% of the network’s hash rate by the end of 2022 based on the more than 100 EH of machines on order for 2022, by company filings and press releases. Conclusion 2021 was a very eventful year for mining. Mining is starting to attract more attention both inside and outside the Bitcoin space, with operators and investors interested in the economy and others concerned about its perceived impact on the environment. We are optimistic for 2022. If current trends continue, the industry will continue to professionalize and efficient miners will stand out from the rest of the pack. North America will play a historically overblown role in the coming year, especially as public companies scale their hash rates and continue to gain market share. The industry’s expansion in the region will create more jobs for rural communities in the United States and Canada as miners seek out areas of excess power, including former manufacturing hubs. Miners are likely to have a good year. The ongoing disruption between hash rate and price is more likely to continue as supply chain failures and hardware constraints limit hash rate growth. This is a guest post from Karim Helmy and Brandon Bailey. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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