Fundamental Labs, a blockchain fund manager that’s backed Binance, Coinbase and Canaan Creative, is investing $44 million in top-of-the-line bitcoin miners, a longer-term bet than most are making in the sector.
Revealed exclusively to CoinDesk, the Shanghai-based firm plans to run 20,000 to 30,000 units of brand-new mining equipment starting in June to capture on the cheap hydropower electricity during the rainy summer in China’s southwestern region.
“Mining is the fundamental block to support the whole crypto ecosystem. That’s why we invest in mining farms, equipment and pools and participate in mining ourselves,” Howard Yuan, managing partner of Fundamental Labs, told CoinDesk.
But unlike what most retail miners have been doing – buying second-hand miners ahead of the summer – Yuan’s firm is maximizing its mining scale by investing in the latest and most powerful equipment on the market, such as Bitmain’s AntMiner S17.
The unit price of these newest mining models made by manufacturers like Bitmain, InnoSilicon and MicroBT, ranges from $1,500 to $2,000 each, and will be ready for shipment in large quantities over the next two months.
“We don’t buy old machines since our focus is to participate in mining for the long term. And second-hand equipment like AntMiner S9 won’t be useful once the summer season ends,” Yuan said.
The capital for this investment comes from a 300 million yuan, or $44 million, mining fund that Fundamental Labs recently closed, which is the first phase of its overall plan to raise 1 billion yuan ($150 million) this year exclusively for further deployment in cryptocurrency mining.
Yuan said the firm was launched in 2016 with about $30 million of its proprietary capital, and has since then grown the total portfolio to over $500 million through five series of funds. Its holdings include an equity investment in Coinbase (which the U.S. crypto exchange confirmed to CoinDesk) and Binance’s BNB token.
The firm declined to disclose the names of its limited partners, except to say they are from the traditional industries as well as family offices in China.
Because it’s using brand new products, Yuan said Fundamental also will be less risk-averse than individual miners when facing bitcoin’s price volatility. He told CoinDesk:
“We think crypto mining will become more institutionalized in the future. It’s crypto capitalism. Retail miners will be gradually squeezed out because of challenges like price volatility and increasing computing difficulties.”
Hash rate boost
Such new capital entering the crypto mining space with more powerful equipment will likely give another boost to bitcoin’s total hash rate in the coming months.
While InnoSilicon and Bitmain’s new products, such as T3 and AntMiner S17 can compute as much as 45 to 50 trillion hashes per second (TH/s), Shenzhen-based MicroBT claims its latest M20S can even reach 70TH/s.
Even assuming Fundamental Labs will run all of its 20,000 to 30,000 units with the least powerful of those, its plan could increase the bitcoin network’s total hash rate by at least 1,000 quadrillion hashes per second (PH/s).
That would account for about two percent of bitcoin’s total hash rate at the moment, which is around 50,000 PH/s, according to data from Blockchain.info.
On May 2, the bitcoin network’s total computing power reached a six-month high above 58,000 PH/s. Mining farm operators in China previously estimated this figure will go up to 70,000 PH/s during the summer.
Yuan said with the plan to raise a total of $150 million for its mining fund this year, the firm will further build up and maintain a mining scale that consumes about 200,000 kilowatts per hour (kWh).
Given the company only considers the latest mining equipment, which mostly consumes two to three kWh, each, that means it aims to scale up its facility to run 60,000 to 100,000 units of new equipment in total throughout the year.
That could translate to a hash rate boost between 3,000 PH/s to 5,000 PH/s to the bitcoin network. By comparison, mining giant Bitmain currently owns about 2,000 PH/s, or four percent, of the bitcoin blockchain’s computing power.
After the summer season, Yuan said his firm will shift its focus to other provinces in China like Xinjiang which has more fossil fuel power stations, as well as central Asian countries like Kazakhstan.