The Sino-US bitcoin ASIC War Begins
Miners upgrade fleets as bitcoin production cost continues to go up
The continuous growth in bitcoin’s network hashrate since July is pushing up the cost of bitcoin production for many mining companies, which seems inevitable as the halving looms.
Over the past two weeks, most of the major mining firms have released their Q3 reports. The chart below analyzed by TheMinerMag shows the latest cost of bitcoin production by these companies. The cost of bitcoin production includes only energy or hosting bills and direct site expenses, excluding depreciation and other administrative expenses.
Nine out of the 15 companies in the chart experienced an increase in bitcoin production costs ranging from 4% to nearly 30% in Q3 compared to Q2, according to TheMinerMag’s analysis.
Only six of them managed to reduce their costs of bitcoin production. Riot, Argo, and Galaxy Digital took advantage of the power credits they received from curtailment activities over the summer. Marathon has improved its uptime while outgrowing bitcoin’s network hashrate during Q3, slashing the cost of bitcoin production. Meanwhile, the decline in natural gas prices worked in favor of Greenidge and Hut 8.
Among the companies that have released their Q3 earnings, HIVE had the highest cost of bitcoin production at $22.4k per BTC mined, reflecting a 21.2% jump on a quarter-over-quarter basis. Now imagine what happens if the halving event doubles that and bitcoin’s price is still below $40,000.
The main reason for such an increase in the cost of production is the rising network difficulty (or the mining difficulty). For the same amount of power used, the bitcoin output will be reduced proportionately to bitcoin’s hashrate surge (granted that one’s fleet efficiency or uptime isn’t improved).
Even though there were summer curtailment activities, bitcoin’s network hashrate increased significantly from 368 EH/s in June to 406 EH/s in September and surged further to 445 EH/s in October. The relentless competition will inevitably erode those who do not grow or optimize their operations.
That is also why miner manufacturers are racing to roll out the latest generation of equipment. There are demands from buyers to upgrade their existing fleets so that they can sustain the upcoming halving.
Speaking of miner manufacturers, we may be witnessing the start of a Sino-U.S. bitcoin silicon war. U.S. startup Auradine initially announced its bitcoin ASIC design in July touting its 4nm technology. The company followed this up with a release on Tuesday, launching two miner systems that are said to achieve as much as (or as low as) 15 J/TH in efficiency.
Such an efficiency level, if true, will be competitive enough to rival either Bitmain or MicroBT - the current market leaders. Auradine said its goal is to offer North American mining operations an alternative to “foreign ASICs,” referring to the industry’s dependence on Chinese manufacturers.
In its initial July announcement, Auradine said the full miner systems “will ship to early access customers in Q3 with production volumes starting in Q4 2023.” In the announcement this week, the timeline appears to have been postponed. The company said the shipment will start in Q2 2024 with production volumes picking up in Q3.
Auradine previously raised $80 million in a Series A round and also received investment from Marathon, whose CEO sits on the board of Auradine. Marathon will likely have the earliest access to the Teraflux miners. It will be interesting to see if the products deliver what is promised. Until then, it is reasonable to remain skeptical. We all know what happened to Intel and more notoriously, Butterfly Labs.
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