China's Mining Ban Turned ASIC Futures Prices Upside Down

In the summer of 2021, China's mining ban disrupted prices for future ASIC orders. Here's what we learned from when premiums and discounts went topsy-turvy.

Yijing Yuan
Yijing Yuan

When the Chinese government moved to ban Bitcoin mining in the Summer of 2021, the crackdown completely upended various aspects of Bitcoin's mining markets. One of the more curious examples of disruption comes from the ASIC futures market, where for the immediate months following the ban, machines with long delivery times were sold for premiums over spot prices rather than their usual discounts.

ASIC purchase price plays a major role in the profitability of Bitcoin mining operations. If you check Luxor’s rig index regularly, you probably know that rig prices can be volatile. China’s Bitcoin mining Ban in May 2021 is a good example: new generation rig prices drop almost 50% in response to the crackdown.

But a few months later, as the ASIC market bounced back and prices gradually recovered to pre-China Ban level. Although it is practically impossible to foresee how much an S19 will cost in several months, a miner can look at general price trends to estimate future prices.

In this article, we share insides of how prices of future shipping rigs can help us determine the prospective rig price movement.

What Are Bitcoin Mining Machine Futures Orders?

Sometimes, newly-purchased Bitcoin mining rigs are not available for immediate shipping, so there is a period of waiting between purchase and delivery. To compete with prices for rigs that can be sent out to buyers immediately, sellers often offer a discount for rigs that are shipped in the future. From these futures prices, we can gauge market sentiment because sellers might not be willing to offer more discounts if they believe a specific price is below an ASIC’s fair market value.

To avoid biased or noisy data and outliers, our analysis focused solely on the S19, the most popular model in the ASIC futures market. We categorize the prices based on the time period between purchase and shipping, and then we compute the discount that’s offered on those machines. As displayed in the chart below, we break up the wait times into 1,2,3, and 4+ months.

Generally, the longer you have to wait for your machine, the heftier the discount. Typically, these discounts are in the ballpark of 10-30%. The average discounts for Q1 2021, for example, were: 8% for 1 month orders, 12% for 2 month orders, 16% for 3 month orders, and 26% for 4+ month orders.

Source: Luxor ASIC Trading Desk data

However, these discounts are reduced or disappear entirely in June, July and August of 2021. In June and July, the discount for machines delivered in 2 months is reduced to 5.3% and 7%, respectively. This suggests that sellers viewed rig prices in June and July as below fair market value.

More interestingly, for the months of June, July and August, S19s shipped 3 or 4+ months later were sold for a premium to spot. Once again, this implies that sellers were anticipating rig prices to rebound after the Summer.

If we look at Hashrate Index’s Popular Rig Index for the S19, the spot price has been trending lower since April 2021, bottomed in June/July 2021, and experienced a peak for the second half of the year in October 2021. The downtrends of S19 prices in April and May are largely due to bitcoin’s own downward price at this time, as futures prices in May still follow the same pattern as previous months. After the China Mining Ban started taking effect, a selling spree put severe downward pressure on rig prices.

S19 price 2021
Source: Hashrate Index

The S19 with 4+ months shipping time in July has about the premium when compared to the S19 with 3 months shipping time in August. This indicates that sellers believed that the market would likely recover quickly from the China ban fallout. The spot price did recover strongly in the Fall, peaking for the second half of the year in October.

Data and patterns for September 2021 further validate this. The small premium on rig prices scheduled for shipment 1 month after payment in September indicates seller optimism for short-term price increase. Furthermore, the premium starts to diminish for S19s with 4+ month shipping time starting in August as rig prices continued to bounce back to previous levels.

Can ASIC Futures Orders Help Us Forecast Rig Prices?

The chart below presents the different patterns of discounts/premiums, particularly highlighting where and how China’s mining ban impacted the ASIC futures market. For the months of pre-China Ban and post market recovery, the future shipping rig prices followed a normal pattern where buyers received a discount on the price for taking the risk of future pricing uncertainty. But for the months of June, July and August, the period immediately after the China Ban, discounts shrunk for rigs with 1-to-2 month shipping delays and premiums were added for rigs with longer shipping delays.

ASIC futures prices
Source: Luxor ASIC Trading Desk data

Normally rig prices would be cheaper for machines with longer shipping delays. However, when there is a premium for rigs that ship in the future, it hints that rig price could be at or near a bottom. We can follow the discount/premium change of different shipping delays to predict ASIC market bottoms and estimate when rig prices will recover in the future.

Additionally, these trends could also indicate that buyers are willing to pay premiums for futures deliveries when they don’t have space to plug in spot-purchased machines. For this case, it might be better for these miners to buy spot and store the rigs until they can use them, rather than pay a fleeting premium in times of market volatility and uncertainty.

You may be wondering, now that the China Ban is in the history books, how can we leverage this data on shipping delay discounts to strategize rig acquisition? In my next article, we will go into detail by analyzing the projected monthly revenue of an S19 and comparing it to the monthly savings from discounts offered by futures shipments. Stay tuned!

Header image by Mathilda Khoo via Unsplash

ASIC Market

Yijing Yuan

Data Analyst