BitMEX Report Points to More Consolidation in Bitcoin ASIC Mining

The Bitcoin (BTC) mining ASIC manufacturing industry is expected to further consolidate due to tightened competition, geopolitical pressures and slower returns on investment after Bitcoin’s recent halving. 

In a new report from crypto derivatives exchange BitMEX, published June 15, researchers wrote they “think it is likely that only 2 to 3 players will survive into the longer term.”

The report analyzes the history and present state of the ASIC manufacturing industry, with a focus on the major players currently involved —- Bitmain, MicroBT, Canaan and Ebang. 

ASIC refers to mining hardware that uses Application-Specific Integrated Circuit chips, which are tailored to efficiently mine cryptocurrencies based on a specific hashing algorithm. 

By contrast, set-ups that use GPUs are less specialized, and have therefore to date struggled to compete for rewards on the network with those that deploy ASICs. 

This has led to persistent concerns over centralization on various blockchains, due to the rising capital investment costs for prospective miners. 

Consolidation among ASIC manufacturers themselves, as BitMEX’s analysis suggests, therefore implies increasing concentration at various levels of the industry.

Consolidation across the board?

Notably, BitMEX’s report expects that not only will ASIC manufacturing continue to consolidate, but the mining farm operating sector will as well.

In its earnings call Q&A session for Q1 2020, ASIC manufacturer Canaan reportedly revealed that:

“Even after the halving, we see more and more inquiries and they are in large amounts, large potential order inquiries. We see sales are more and more key clients or big clients.”

BitMEX reporters claim they have been hearing the same message from discussions with ASIC manufacturers MicroBT and Bitmain.

Reasons for consolidation within ASIC manufacturing

BitMEX’s report indicates that Bitmain — whose market share was 75% during the 2017 bull market — has been losing dominance over the past 18 months to new players such as MicroBT. The latter was estimated to have 35% of the market in 2019. 

Bitmain nonetheless remains, for now, the “number one player,” despite “facing an almost comically abysmal corporate governance situation” amid a power struggle among its top executives. 

Meanwhile, rival manufacturer Canaan has secured a public listing and therefore offers more transparency into its operations and earnings, yet BitMEX notes that:

“ASIC manufacturing is a cash intensive and tough industry [and] given the technical lead MicroBT and Bitmain have, without a strong bull run for Bitcoin, the road ahead for Canaan may be challenging.”

Ebang, which is also seeking an IPO (as is Bitmain), faces a “relatively weak market positioning with respect to the energy efficiency of its products.”

Other factors pressing on industry actors include the tensions over trade between the United States and China, the impact of COVID-19 and the fraught political situation in Hong Kong.

MicroBT marketing manager Elsa Zhao appears to corroborate BitMEX’s assessment, stating:

“The customer base is moving more and more out of China. Since the halving the return on investment period is growing [...] based on the current difficulty and price. At the same time [...] customers are now larger funds, and no longer small businesses or individuals. [...] After the Bitcoin halving, competition is getting more serious and only the most competitive mining machines will survive. Further consolidation is likely.”