The global cryptocurrency mining hardware market is expected to grow by as much as $9.21 bln (about 10%) in the next three years, owing to the profitability of the business and predictable demand for equipment. By 2027, global growth is projected at $12 bln (11.35%). Does Russia have any reason to expect an expansion of this market?
The demand for crypto mining equipment has been growing steadily since mining actually became a thing in 2010, driven by wider penetration and awareness of cryptocurrencies, and their recognition as a part of the new reality. The popularity of cryptocurrencies promotes demand for crypto mining hardware. According to our observations, mining hardware imports to Russia has been growing by about 50–100% per year. The demand for mining computers surged in late 2022, and continues to grow. Equipment distributor Prominner noted that its sales increased by 320% in 2022.
The market for equipment and in general, the cryptocurrency mining market size is difficult to estimate accurately enough because it depends on many factors such as crypto prices, the availability of electricity and other resources, the availability of hardware and legal constraints. Here are a few statistics that can give one an idea of this market. For example, according to CoinShares, the global Bitcoin network hashrate (total hashing power) was at an all-time low, about 174 EH/s in December 2021. Last year, however, it showed a 58% rise to 272.4 EH/s.
This shows that the demand for crypto mining equipment and crypto mining itself is quite high and even growing. It is also driven by the fluctuations in the price of mining machines with the bitcoin rate. For example, in the fall of 2021, when bitcoin was $65,000, the device cost RUR 1.3 mio ($16K at current exchange rate); today, its price is RUR160K ($1,970).
This year however, even though cryptocurrency rates are at a fairly low level, the demand for equipment is not falling, but growing. This suggests we can expect growth in this market and industry in Russia.
Russia shows growing interest in crypto mining
Last year, Russia was the world’s second largest crypto miner after the United States; Kazakhstan was the third. The interest in mining surged due to a high surplus of electricity in the country, as large amounts of electricity and generation capacity are idle now, and crypto mining is an effective way to use them. One can say that Russia is selling electricity for cryptocurrency. In most poor regions, crypto miners take advantage of the low cost of electricity to ensure a stable revenue with minimal fixed costs, quickly getting the cost of equipment and electricity back.
- Foreign investment. With the favorable conditions for crypto mining and a weak regulatory framework in Russia at the moment, foreign stakeholders started showing interest in this industry. Players from China, which outlawed crypto mining due to a shortage of capacity and electricity, are considering Russia as a good option for relocating their mining farms.
- Mining is the only way to obtain “clean” cryptocurrency, not mired in any gray or black transactions. This kind of crypto assets have more confidence among investors globally.
- Even venture investors begin to consider crypto mining, attracted by its high rate of return – from seven to 12 months, on average.
- Cryptocurrency in Russia is one of the ways to bypass the sanctions, including when it comes to cross-border payments. The blockchain technology can be used to perform transactions between countries and partners.
What can we expect this year?
Legalization in Russia is one of the biggest drivers that make crypto mining so popular. The proposal to legalize cryptocurrency mining was submitted to the State Duma in the fall of 2022 and is expected to be passed into law this year. Legalization will bring new companies to the market that will boost the existing capacity and further impact the growth of the cryptocurrency market.
It is expected that cryptocurrencies will strengthen their rates this year, due to the fact that the next halving event (when the reward for mining is cut in half) will happen in just over a year. By the time of the next challenge on the current capacities, it is possible to gain 80% less profit, which means that this year will account for the same amount of mined cryptocurrency as the next three years combined together.
Meanwhile, it is very difficult to suggest any trends or prognosis about the cryptocurrency market. Any crisis may affect cryptocurrencies the same way that stocks on any venture market are affected. But preconditions for the industry’s boost exist and one is the government’s lenient attitude.
By Alexander Fyodorov, Development Director at Promminer