Spring is usually a welcome time of year for bitcoin mining businesses in China. The upcoming rainy season brings excessive hydropower, making electricity cheap and mining more profitable ... all else equal.

This year, however, two key variables have changed, upending the calculus for operators of mining facilities and for miners themselves in the world’s hub for this activity. 

After recovering from March’s brutal selloff, bitcoin’s price has been stagnating around $7,000. As a result, mining farms that offer hosting services are struggling to find enough customers to fill capacity. 

Further, the standstill comes just before the network’s halving event, due in less than 20 days, which will put further pressure on revenues in the multibillion-dollar bitcoin mining industry.

Read also: Bitcoin’s Halving, Explained.

The situation presents a conundrum for miners: whether to buy new, more powerful equipment; and if not, when to switch off older models, and when to switch them on again. The winning move will depend on how things play out after the halving, which is far from certain. 

“If bitcoin’s price doesn’t go up post-halving, then who’s going to buy new equipment to fulfill this capacity?” said Huang Fangyu, co-founder of ValarHash, the company behind the mining pool 1THash, which owns facilities primarily for self-mining in Sichuan and sells cloud mining contracts.

As they game out the scenarios, miners at least enjoy a glut of space to host their machines. Mining facilities in China’s water-abundant southwestern provinces during the summer are offering electricity prices for as much as 20 percent lower than what they did last year in order to attract investors, industry experts say. 

Research firm CoinShares estimated in a December report that China accounted for 65 percent of bitcoin’s global computing power and the southwestern Sichuan province alone accounted for over 50 percent of the network’s total.

Huang said based on his observations, the average offer by facilities for hosting services now ranges between 0.2 to 0.22 yuan ($0.028 to $0.031) per kilowatt-hour (kWh). He estimates it could go below the lower end when the rainy season starts in May and June.

Charles Chao Yu, chief operating officer at the mining pool F2Pool, also said this year’s offer is certainly in the neighborhood of $0.031 per kWh following last month’s price crash as mining farms have to lower their margin to compete for customers. 

For context, the average electricity cost last year in China’s mountainous Sichuan and Yunnan provinces was between 0.24 and 0.25 yuan, around $0.035 per kWh.

A seemingly negligible difference of even just 0.01 yuan, or $0.0014, makes all the difference for bitcoin mining. For a site that runs a capacity of 100 megawatt-hour (mWh), that difference would mean a daily cost saving of $3,360 and over $100,000 per month.

At a time when bitcoin mining’s block reward is about to drop from 12.5 units per block to 6.25 in less than 20 days, saving on electricity would be as important as using more efficient mining equipment.

China-based mining pool Poolin recently conducted a survey to scope out mining farms with hydro-power resources in China’s southwest regions. Poolin’s co-founder Chris Zhu Fa said based on the firm’s calculation, there will be 3 to 5 gigawatt-hours (GWh) of capacity during the summer this year with about 1 GWh that he believes is reliable in terms of pricing and qualification. 

Huang estimates mining facilities in Sichuan overall have a capacity of about 4 GWh while Yunnan has about 2 GWh.

Bitcoin mining’s total average computing power has recently climbed to 113 million terahashes per second (TH/s), a rebound following a 16 percent drop last month. Assuming all of this computing power comes from widely used machines in the market like the WhatsMiner M20S, which has an average efficiency of 50 watt per TH/s, the total network could be consuming around 6 gigawatt of electricity worldwide in an hour. (For context, that is roughly what 600 U.S. households consumed in 2018.)

But if bitcoin’s price remains at its current level of $7,000 after halving, older mining equipment is expected to shut down, which would lead to decrease of the network’s hashing power, making it even harder for farms that need customers to fulfill their capacity.

That said, bitcoin mining is a dynamic market and game theory comes into play. 

If bitcoin mining’s competition and total hashrate drop after the halving resulting from some operators shutting down older models, then those who stick around would be able to receive more mined coins, resulting in older models to come online again. 

“It would be normal to see bitcoin network’s hashrate drop to 60 to 70 million TH/s after halving,” said Liu Fei, who manages self-mining facilities at Chinese bitcoin startup Bixin, during a recent online panel hosted by Chinese crypto media ODaily.

“But when the mining competition drops in June, with mining farms offering more electricity promotions and sourcing second hand equipment to fulfill their capacities, we may see the hashrate go back to 100-120 million TH/s again,” he said.

But what’s underneath these dynamics is the fact that the buying spree for new unused and more powerful equipment has cooled down, which is different from the situation last year and also one factor that leads to mining farms’ challenges in on-boarding enough customers.

For instance, at this time last year, bitcoin’s mining hashrate was not even 50 million TH/s. Bitcoin’s price, although lower than what is right now, was on an upward trend. These factors drove demand for new mining equipment to outstrip manufacturers’ supplies, boosting the network’s hashrate to 100 million TH/s by the end of December. 

Then came the coronavirus outbreak, and eventually the March market meltdown. 

“The March 12 sell-off also caused a lack of confidence among investors in purchasing new equipment at a large scale,” Liu said. “So it’s likely going to be a game for existing inventories during the entire summer season.”

Valarhash’s Huang echoed that sentiment. “The hashrate after halving will drop to a point that older miners like the AntMiner S9 could become profitable again with electricity promotions by mining farms,” he said. “Then the hashrate will go up and some will have to turn off again. That will be a headache.”

And the last month’s sell-off also forced liquidations by many miner operators who had pledged bitcoin for loans, leaving many short on cash at the moment, Huang said. Thus, at this point, investors are taking a step back to wait and see how the market will react after halving before they spend money on new equipment.

But as mining facilities struggle to sign customers, others may see opportunities in the secondhand market as older mining equipment is being sold at unprecedentedly cheap prices.

For instance, distributors on Alibaba.com are advertising used AntMiner S9s in the secondhand market for $20 to $80 per unit, depending on their conditions. At the height of the crypto market’s 2017 craze, a single unit of AntMiner S9 could cost over $3,000. 

“Now it’s like selling iron with mining chips as a giveaway,” Huang said. “But those that have the access to extremely cheap electricity during the summer could still accumulate such stocks to either make a quick buck in the summer or to fulfill unused electricity at mining facilities.”

To be sure, at the bitcoin network’s current difficulty and price, the AntMiner S9 could still yield a gross margin of just under 50 percent at an electricity cost of $0.03 per kWh. 

If bitcoin’s price remains at the current level after halving, S9s could still be marginally profitable once mining competition declines. And the option is available for miner operators to lower the voltage for these older models in order to improve their profitability.

“It all boils down to the price of bitcoin,” Huang said. “If it goes back to $10,000, problem solved. Almost every machine can go back running again.”