China's banned crypto machines are fueling the global mining boom

China's ban on cryptocurrency mining in May sparked an exodus of miners and a global race for millions of the clunky, power-intensive machines they use to solve complex puzzles and earn bitcoin.

Fourteen of the world's largest crypto mining companies moved more than 2 million machines out of China in the months after the ban, according to data collected by the Financial Times. The lion's share of the machines was hastily relocated to the USA, Canada, Kazakhstan and Russia.

Bit Digital, one of the largest U.S.-listed crypto mining companies, has hired an international logistics company to extract its assets from China and is still waiting for a batch of nearly 1,000 machines to be released from docks in the Port of New York.

"We began our fleet migration in March 2020, which in hindsight was a great move. When the ban was announced, we had 20,000 miners in China," said Sam Tabar, Bit Digital's chief strategy officer. Still, the company said it had to abandon 372 machines in China that had “reached the end of their useful life.”

Eight of the 10 largest public mega-farms based in North America have expanded the number of machines in their fleets since China's ban, FT figures show.

When the ban hit, Toronto-based crypto mining company Hut8 was bombarded with offers from panicked Chinese sellers, said Sue Ennis, the company's vice president of corporate development and investor relations. “We were getting calls from providers that were pretty opaque and one-sided,” she said. “They would ask us to pay $20 million without recourse if it doesn’t arrive or arrives broken.” The company added 24,000 machines from Chinese company MicroBT in June.

“Frenzied liquidations” triggered by the Chinese ban caused the price of an Antminer S19, a popular model among industrial miners, to fall 41.7 percent from May to July, analysis by mining firm Luxor Mining showed.

Chinese crypto mining machine maker Bitmain, the maker of the S19, sold 30,000 machines to Marathon Digital Holdings, a Las Vegas-based mining company, in August; while Terawulf of Maryland bought another 30,000. The company announced in June that it was suspending sales of its machines to “facilitate industry transition” and reduce “major pressure” on the market.

Outside the United States, Kazakhstan has emerged as a leading mining center. FT data shows that the majority of machines delivered to Kazakhstan come from Chinese mining company Bitfufu, which has delivered 80,000 machines to farms in Kazakhstan, and BIT Mining, which has delivered 7,849 machines as of August.

Another beneficiary of the Chinese ban was Russia, where Moscow-based infrastructure hosting company Bit Cluster received over 5,000 machines from China in the weeks following the cryptocurrency mining ban, while Russian crypto mining company BitRiver said it has now received 1.8 million machines from exiled Chinese miners since the ban.

“The focus of the market has shifted from a lack of equipment to a lack of space for its placement,” said Roman Zabuga, a spokesman for BitRiver. A few weeks before the ban, the company had to reject a deal with a Chinese customer that wanted to outsource another million machines, he said.

According to Jaran Mellerud, research analyst at Arcane Crypto, nearly 700,000 Chinese machines have not been turned back on following the ban and are likely sitting in storage. Since many of them are older generation machines, such as the Antminer S9, it is less cost effective to ship them to places like the US. In July, the price of an S9 dropped to just $367.

This has resulted in older generation machines being scattered to less established mining locations such as Venezuela or Paraguay, where there is less regulatory stability but cheap electricity prices.

Juan Jose Pinto, co-founder of Doctor Miner, a mining company in Caracas, said the Chinese ban was “a great opportunity.” “We have so far been contacted by three different major Chinese miners to host around 7,000 machines,” he said. “If we had the resources, we could host a lot more.”

Pinto said his company pays about $0.01 per kWh for electricity, meaning it can effectively use older, more energy-hungry machines like the Antminer S9. Although these machines are rickety and more prone to breakdowns, Pinto and his team have found inventive ways to keep them running.

“We have what we call ‘the graveyard,’ where we house miners who don’t work but have parts that do,” Pinto said. “If I have a machine with four broken parts and another with six broken parts, I combine them and hopefully build a good miner.”

Digital Assets, a company based in Asunción, is preparing to host 15,500 miners in the coming months, but faces competition from some Paraguayan locals who have started buying machines and mining independently.

And due to Venezuela's struggling economy, cryptocurrency mining is a way for locals to supplement their income. “People mine in their homes with just one machine,” Pinto said. "In other countries there are a few big guys with farms, here there are thousands of people with small farms. Making an extra $100 a month makes a big difference for them."