Is the Halving Sending Old Bitcoin Mining Rigs to the Scrapheap?

Is the Halving Sending Older Mining Equipment to the Scrapheap?

With electricity expenses towering as the primary cost, mining behemoths like Marathon Digital Holdings and Riot Platforms are facing pressure to reduce consumption costs to maintain profitability. While their legacy computers may still yield a profit, the US market is becoming increasingly unfavorable.

The Global Exodus of Mining Rigs

"It's an organic migration," explains Taras Kulyk, CEO of SunnySide Digital, a company that has facilitated the sale of used US mining rigs to miners in Ethiopia, Tanzania, Paraguay, and Uruguay. "The halving is accelerating this trend."

According to Ethan Vera, COO of Luxor Technology, a Seattle-based crypto-mining services provider, an estimated 600,000 S19 series computers, which constitute the majority of machines currently in operation, are being shipped out of the US, primarily to Africa and South America.

The Halving's Impact on Mining Economics

In bitcoin mining, specialized machines validate transactions on the blockchain and earn miners a fixed reward in tokens. The anonymous bitcoin creator, Satoshi Nakamoto, implemented a halving event every four years to limit the total supply to 21 million tokens. The upcoming event marks the fourth halving since 2012, and the reward will be reduced from 6.25 bitcoin to 3.125 bitcoin.

Bitcoin's price has surged by approximately 50% this year, hovering around $63,500, but it remains below its all-time high of $73,798 reached in March 2022.

With the halving just weeks away, deploying more efficient machines has become a pressing necessity, as continued reliance on older equipment could result in electricity costs that approach or exceed mining revenue.

Profitable Haven for Legacy Rigs

While S19 series and comparable models may no longer be profitable to operate in the US post-halving, "they can still generate respectable profits and extend their lifespan if hosted" in certain parts of Africa, says Jaran Mellerud, CEO of Hashlabs Mining, a Dubai-based company that leases data center space in Ethiopia and provides hosting services to bitcoin miners.

Price Plunge Anticipated

Some buyers are holding off on purchasing older computers until after the halving, anticipating a further price decline, according to Lauren Lin, Luxor's business development director.

Luxor, which operates a trading desk for used mining equipment, reports that the price of used S19 models stood at $7,030 in March 2022. The price plummeted to $900 a year later as bitcoin prices tumbled, and it has since dropped to $427 this month, with projections of $356 post-halving in May.

US Miners Seek Alternative Locations

Some US miners are opting to relocate their equipment to regions with lower electricity costs and third-party data centers rather than selling it. Nuo Xu, who operates two mining facilities in Texas, is traveling to Ethiopia, Nigeria, and other countries this month to scout potential sites for approximately 6,000 older computers.

"There are more risks associated with operating in Africa, but I have to move them there," he says. "Cheaper electricity outside the US means I can recoup my overhead costs much faster," he adds, citing lower labor and construction costs as additional incentives.

Hosting Fee Variations

Miners worldwide who lack their own facilities incur hosting fees that typically cover electricity, labor, and third-party operators.

Xu has observed that hosting fees in the US range around 7 cents per kilowatt-hour. In Ethiopia, which has relaxed regulations on crypto mining and increased its power generation, the rate is approximately 5 cents, according to Hashlab's Mellerud. This two-cent differential is significant for miners.

Electricity itself costs about 3 cents per kWh in Ethiopia, according to Hiwot Eshetu, marketing and business development director at Ethiopian Electric Power. In the US, the range is between 3 and 6 cents, based on estimates from Luxor.

"Ethiopia is rapidly emerging as a major player in the digital mining ecosystem," says SunnySide's Kulyk, who reveals that his company is negotiating a deal to facilitate the transfer of between 20,000 and 40,000 mining rigs to the East African nation.

US-Based Miners Face Challenges

Not all US-based equipment is destined to leave the country. The process can be more challenging for publicly traded companies, which must consider risk-averse shareholders. Concerns about transportation costs, potential damage, and security also contribute to the reluctance to relocate equipment abroad.

Publicly traded Bit Digital, one of the largest bitcoin miners, has older-generation computers sitting idle in a Houston warehouse. "These machines essentially gather dust," says CEO Sam Tabar. However, the New York-based company retains them because when bitcoin prices rise, the computers can be brought back online and still generate profits.

Massive Investment in New Hardware

Miners have been preparing for the halving for years and are investing heavily to replace their aging hardware.

According to crypto-mining researcher TheMinerMag, the 13 largest publicly traded bitcoin mining companies, including Riot Platforms and CleanSpark, have placed orders for more than $1 billion worth of new machines since February 2023.

Five of the largest miners raised over $2.7 billion by selling shares in the two years ending December. Since the start of 2023, those same miners have secured an additional $840 million, according to the researcher.