Mining Price War in Sichuan (China) during the Flood Season

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It’s the beginning of the Fengshui Period, also popularly referred to as the flood period in China’s Sichuan province. The Fengshui Period lasts from April to October every year. During this period, Sichuan attracts a lot of cryptocurrency miners across China as the electricity rates drop significantly compared to other provinces.

The rate of electricity in Sichuan drops as low as 0.25 yuan (roughly $0.04) per kilowatt compared to 0.35 yuan (roughly $0.05) per kilowatt in other regions like Xinjiang and Inner Mongolia. Thus during the Fengshui Period, nearly 80% of the miners move from other parts of China to Sichuan.

The Sichuan Province has turned out to be a Fengshui treasure for mining hosting sites. In all of China, the province alone contributes 60% of mining revenues generated during the flood period.

According to local news publication Odaily, last year miners flocked in huge numbers and mining hosting sites sold electricity in large quantities. The mining hosting sites also built new mining farms to meet the demand.

Triggering The Price War

The situation is taking a different turn this year. Chaihua, the founder of Tiantian Mining notes that due to the excess of mining farms created last year, the supply and demand equation has become unbalanced.

Last year in 2018, the electricity price was high at 0.35 yuan at the hosted mining locations in Sichuan, but still, all the spaces were fully occupied due to the huge crypto mining demand. This led to the mining hosting sites expanding their operations to new farms with the hosting locations having around 10,000 spaces each.

But this year, the province is witnessing a major shift with tens of thousands of spaces remaining vacant for new miners to sign up. Mining hosting site owners are heavily advertising these vacant spaces to attract miners. However, there is little to no advertisement for the mining machines.

Needless to say that the mismatch in the number of miners and mining machines has triggered a price war between mining hosting sites. Another hosting site owner named Liu Xiang notes that despite reducing the electricity costs to two-thirds of the normal, their positions are not sold as there is still huge space left for bargaining. Thus, the situation has turned more challenging for all the mining hosting site owners who arrived in Sichuan during the flood period.

In late March 2019, an attempt was made to bring crypto mining participants — mining hosting site owners, miners, and mining rig dealers — to Sichuan. However, this didn’t turn out to be much of a success. Despite the Sichuan Province having an additional 500,000 mining rig capacity compared to last year, there’s a considerable drop in the number of mining rigs and miners.

This widening gap is evidence that Sichuan’s crypto mining industry is currently going through a bear market. In addition to the considerable drop in new miners coming to Sichuan, the region is witnessing high attrition rate as even the old miners are withdrawing operations.

Old mining hardware is being shipped to cheaper overseas markets like Iran. However, there is not enough of the latest mining hardware to meet the outlying vacant seats.

Collaborating With Distributors of Huaqiang North

To further understand the market shift, here’s a look into the story of Cao Shengyuan who’s been associated with the crypto mining industry since 2014.

Driven by the availability of low-cost electricity in the Sichuan Province, He signed up for 20,000 kilowatts of electricity. This was sufficient to provide mining capabilities for nearly 15,000 mining rigs.

Shengyuan started the construction of a mining hosting site by late 2018 to have it completed by April. However, at this time, he is struggling to find enough “tenants” for the newly open spaces.

Having made such huge investments, he told the Odaily that it is very difficult to get more than 2000 mining rigs for the vacant spaces. Furthermore, he notes that getting 5–6 “tenants” with large mining capacity could easily fill up 12,000 spaces.

But the issue currently is that big tenants are scarce at this point. Shengyuan blames the information asymmetry and lack of transparency as the reason behind this. He also alleges that the non-standardization of information has led to unfair advertisements by the insiders thereby making mining as an “acquaintance” only business. He plans to hire special salesmen, who are mostly distributors of Huaqiang North, to sell the vacant spaces at the mining hosting site.

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