After a brief period in which FPGAs were the most efficient mining hardware on the market, machines built with application specific integrated circuits (ASIC) began to dominate the network in 2012 and 2013. ASICs are designed specifically for one purpose and optimized to do that operation with incredible speed and efficiency-in this case, mining bitcoin. The hardware upgrade cycle has played a substantial role in contributing to mining’s economies of scale, an effect that’s been particularly acute in this cycle’s hardware-constrained market. ASICs remain the state of the art in hardware, but today’s mining rigs are astronomically more efficient than the first generation of ASICs.

This trend will be particularly pronounced if the BTC price remains high enough that most miners continue operating profitably. Like other commodity producers, miners carry a substantial amount of price risk, which they can hedge through the careful use of derivatives. In the event of a sustained BTCUSD market downturn, a spike in M&A activity seems likely, as larger and leaner miners opportunistically purchase less-efficient competitors for hard assets like machines and transformers. As the industry matures, miners will continue to explore other financing options, including debt backed by bitcoin and ASIC machines, and become increasingly sophisticated with their treasury management strategies for yield enhancement and risk protection.

Following the ban, the United States and North America rapidly became the center of the mining industry. Simultaneously, we saw several private miners begin taking steps to list publicly in order to gain access to capital markets enjoyed by the publicly traded miners. At the end of Q3, publicly traded miners on US exchanges represented approximately 12% of the Bitcoin network’s hashrate. At the start of 2021, there were only two bitcoin mining companies listed on the NASDAQ, Marathon Digital (MARA) and Riot Blockchain (RIOT), with several others traded on Canada’s TSX ventures exchange.

This ban, which to date remains the single largest geopolitical attack on the Bitcoin network, spurred massive growth in Kazakh, Russian, and American mining operations while dramatically decentralizing the network out of China. Since the Chinese mining ban, geopolitical risk has become a much better-understood force in the mining industry. Within the United States, miners gravitated to friendly jurisdictions with excess energy like Wyoming, North Dakota, and Texas, a trend that we expect to continue. Miners increasingly choose to base their operations in stable political environments, hoping to avoid regulatory uncertainty like that encountered in China, or more recently Kazakhstan.