With China’s mining hardware makers delayed by the coronavirus, some miners face risks ahead of halving

The coronavirus outbreak could present new challenges to bitcoin miners – and the companies in China that provide them with hardware – depending on how well prepared they are for the upcoming block reward halving. 

The Chinese government decided to extend the Lunar New Year holiday until February 2 due to the spreading virus that has gripped the entire nation by fear and uncertainty. Subsequently, several of the largest bitcoin mining equipment manufacturers, including Bitmain, MicroBT, and Canaan, put out notices informing clients that they have suspended shipping, manufacturing, and customer services of their mining rigs. 

Similar effects have been felt across different industrial sectors, with China being one of the largest global merchandise exporters. The Wall Street Journal estimated that overall industrial output during and immediately around the extended holiday is running at around a fifth of its normal capacity.

Demand for new bitcoin mining equipment, especially Bitmain’s new Antminer S17s and MicroBT’s Whatsminer M20s, is acute, especially as halving – the event where block mining reward will drop from 12.5 BTC to 6.25 BTC - approaches sometime in May. 

In early 2019, Bitmain and MicroBT – two of the largest mining equipment manufacturers – released their new miner series Antminer S17s and Whatsminer M20s, respectively. Since then, mining firms around the globe have been cycling out their old rigs to position themselves in a more comfortable margin in anticipation of their revenue being cut due to halving. 

“There will be delays in some of the February deliveries,” said Chicago-based mining rig broker Matt D’Souza. 

According to D’Souza, Bitmain’s Shenzhen facility is currently on a “prolonged holiday through Feb 3,” hence the delay in delivery. However, shipments coming out from the firm’s Malaysia factory are still on schedule, D’Souza said. 

Meanwhile, the lack of customer services may also present challenges to some hardware purchasers who may need support from the manufacturers when deploying and operating their equipment. 

“This is the most [pressing] issue now. Due to the logistic problem, miners can not be sent back for a fix. The only thing we can do is remote video call trying to have onsite staff, which are usually less technical, to fix the miners,” said Ricky Li, the co-founder of cryptocurrency market maker Altonomy, which also runs its own mining facilities. 

To be sure, many miners had mostly completed upgrading their equipment by the end of 2019, and D’Souza estimated that only around 35% of the entire network hash rate still uses Antminer S9 – once the king of bitcoin mining machines. 

As such, the delayed hardware production schedule may not have a huge impact on the miner community. However, as miners start to deploy the new gear, the bitcoin hash rate of the entire network is anticipated to increase, driving up the network difficulty. This means that if miners don't receive and install their new equipment in time to keep up with the rising difficulty, their profits may take a hit as well. 

“Profitability is impacted. This is pretty significant due to anticipated increasing difficulty,” said Li. 

For bigger mining firms, the delay seems to be less of a concern.

Publicly listed bitcoin mining firm Bitfarms told The Block that its mining farms deployed a mix of hardware from Canaan, MicroBT, Bitmain, and Innosilicon. However, since it already upgraded 73% of its mining rigs with newer gear purchased in 2019, the production delay has little impact on its operation, according to Bitfarms CEO Wes Fulford. 

“Production will continue in Malaysia, and [as for Shenzhen] for the time being we are determining this virus’ impact gets,” Fulford told The Block. 

“I think the virus is a 4 to 6-week hiccup. We’ll move beyond it and catch up,” said D’Souza.