Chinese Bitcoin miners are buying used equipment and make deals with mining farms and hydroelectric plants, betting abundant water this summer is going to make their businesses more profitable once again.

That is going to be as during this season, an essential amount of excess electricity is also expected to be generated by hundreds of hydropower stations, especially in the southwestern provinces of Sichuan and Yunnan.

This level of excess power events in competitive electricity expenses for Bitcoin miners, making it probably one of the rare occasions to earn profits in the current bear market that already affected the mining sector.

Hashage, which is a company based in Chengdu in Sichuan, which operates six mining farms with a supply of 200,000 slots for machines, for instance, said that the electricity cost in Sichuan at the time of the summer is often around 0.25 yuan, or $0.037, per kilowatt hour for hosting equipment for Bitcoin miners.

The CEO of the company, named Xun Zheng, said that over the last month the firm was talking to individual Bitcoin miners and some larger mining firms with an entire demand of more than 1 mil slots for expanding mining chips. He said that individual miners on average look to host 1,000 to 3,000 units of mining equipment each, while some larger firms are eyeing at a larger scale of more than tens of thousands of machines.

He also added that even though the exact electricity costs with local hydropower stations can’t be finished until the end of this March, Bitcoin miners already started looking for resources, as well as deals with farms before the season comes so that they have sufficient time to ship equipment to the mountains and set them up. He said that the interest is definitely there.

Demands for second-hand equipment

Adding to the level of interest is also the relatively cheap cost of buying second-hand Bitcoin ASICs, mainly utilized AntMiner S9s. Used S9, depending on the level of its damage, may be purchased for about $150, also with a total computing capacity of a bit over 10 trillion hashes per second.

Some wholesalers in China are right now selling second-hand S9s on the e-commerce marketplace Alibaba for $100 to $200 each. The chief marketing officer of wallet service and mining pool Bixin, named Tyler Xiong, said that the last round of miners that shut down operations at the end of last year resulted in the increased availability of second-hand equipment.

According to him, S9 is now like the Ak-47 in ASICs. It has the best performance over cost ratio in the market. Bixin also has some plans to increase its mining capacity in Sichuan during the summer period but declined to reveal its planned scale ahead. He also explained that it is a common practice for the mining firms to sign agreements with power stations to buy 80% of the capacity of the plants in advance. That actually means that whether or not a mining farm has enough miners to consume the pledged amount, it also has to pay for what it agreed on, one way or another.

As a result of that, Zheng said that besides hosting machines for the miners, his firm has some plans to deploy around 20,000 ASICs to mine on its own behalf, with second-hand machines bought on the market.

The shift in the market dynamics  

However, every year during the summer period, there is plenty of rain and water in the Garze and Ngawa Tibetan prefectures in the western part of Sichuan, where a lot of the mining farms are located.

The shift in market dynamics is what makes 2019 different from 2018. The co-founder of Hashage, named Yun Zhaon, explained that the market was on the side of mining equipment makers and mining farms. He said that in the bullish market, it was quite tricky to buy mining equipment, and find available slots in mining farms, as the electricity cost was not too big of a problem.

Moreover, that is the reason why he started the organization in Sichuan, aiming to improve the liquidity between the supplies of mining farms and demand from miners. Zhao said that in the bearish market, they have to huddle together and find some better ways of using their resources. Xiong of Bixin shared this view too, saying that in this round the dominance of the market is going to shift to miners and whatever farms which may get the cheapest electricity cost.

Moreover, adding to the level of interest from right now is also the openness from local governments to let privately owned hydropower stations participate in a more market-driven electricity trade so that excess energy may be sold to private companies in the energy-intensive industries.

The provincial government of Sichuan issued a notice in August last year as a practical guide to deepen the electricity reformation in the region. Even though the note didn’t mention any particular industry, it emphasized enlarging the scope of customers that can actually participate in electricity trades, while reducing administrative interference in the market.

The risk is still here

The final goal is going to be to better use the excess electricity which is generated in the area, which is otherwise going to be wasted. The notice even mentioned that the government is going to continue the experiment of establishing industrial parks near some plants which have significant excess power.

However, even with this alluring opportunity, the risk is still there. Zhao and Zheng both said that the main danger lies in the possibility of a price drop of Bitcoin below a threshold of $3,000, even with cheap electricity costs. If this happens, a lot of miners are going to have to pull the plug again.

Even though it is a common practice for miners to short Bitcoin futures contracts to hedge potential losses, Zhao explained that an inherent risk in that situation is that there may not be enough counterparties to take the long positions.

Zheng mentioned that there were also mining farms which lured the miners with the promise of cheap electricity rates but jacked up the price after they set up their machines. They have not had any other choice but to suck it up.

The industry is always about making bets after all. There are always risks from several aspects, particularly from the markets side in the bearish time, according to Zheng.

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