Will Bitcoin Spot ETF Be the End of Miners?

As the Bitcoin spot ETF comes and goes, the SEC has successfully controlled the market sentiment. People's focus is on BlackRock and the battle between bulls and bears, but the sadness of the miners has been ignored.

Inscriptions are hot, miners make a lot of money

In 2023, against the backdrop of Bitcoin halving, miners choose to support inscriptions to increase their fee income outside of mining. However, the arrival of spot ETFs will not harm miners’ interests in terms of coin prices, and may even help them increase their passive income:

1. With the approval of spot ETFs, more traditional investors and individual retail investors can legally purchase Bitcoin, supporting the market price of Bitcoin;

2. Second-layer protocols such as the Lightning Network will be legalized, and small, high-frequency on-chain activities will continue to increase mainnet transaction fees, thereby stabilizing the ecosystem.

Unlike when Ethereum switched to PoS, miners were powerless to resist and projects such as ETHW eventually came to nothing. The power of the trinity of Bitcoin mining machine manufacturers + miners + mining pools is not weak. In previous block expansion wars and the recent inscription wars, miners' control over Bitcoin is no less than that of Bitcoin manufacturers and core development teams.

However, in front of asset management giants such as BlackRock, the trillion-level scale of the entire crypto market is not enough. Although Bitcoin miners do not say it on the surface, judging from the trend of currency holding data, they have been selling continuously in the past two months. Although there are concerns that the ETF will be overdue and the good news will be exhausted and the price will fall, in the long run, miners have realized the problem.

The pricing power will shift from the combination of on-chain + miners to off-chain + Wall Street.

Pricing power of migration: East->West, Satoshi->Miners->Wall Street?

The core of Bitcoin's pricing power is computing power.

After the decision in 2021, computing power will inevitably shift to the West, especially the United States. There is no need to say more about this. In contrast to the regional distribution, there is a continued concentration of mining pools. Driven by capital efficiency, miners and mining pools have reached an alliance. Miners still have control over the mining machines, while the mining pools are responsible for daily maintenance. The operating logic is very simple:

Miner income = (mining machine cost - electricity cost - mining pool fee) x number of mining machines x depreciation rate

During the entire bull and bear market, the so-called shutdown price is the most dangerous for mining pools and mining machine manufacturers, because miners will at most suffer floating losses, and as long as they can hold on until the bull market, they can always sell the coins to make their money back. However, mining machine manufacturers and mining pools are engaged in the "water selling" service industry, and once their income is not enough to cover their expenses, they will face an operational crisis.

Essentially, the loss of miners is that the proceeds from selling coins cannot cover existing expenses, but the actual biggest expense is electricity bills. If that doesn’t work, selling coins will also recover some funds.

Mining pools are concentrated, and the masses are coming ashore

It has been 15 years since the first Bitcoin block was mined, and Bitcoin mining machines have been used on a large scale for about 10 years. Although the PoW mechanism left by Satoshi Nakamoto is not environmentally friendly, it has helped miners survive at least five rounds of bull and bear markets due to its robustness, which can be said to be a great contribution.

The initial miners were not entirely a capital game. More participants were "gamblers" from the bottom of society, including Internet cafe owners, crypto geeks, and inexplicable pioneers. The roughness and chaos in the early stages of this market created the initial myth of getting rich quickly. MicroStrategy's position building costs were four or five digits, and their costs were even in the single digits, but they were making huge profits anyway.

But now everything is about to change.

Bitcoin price will shift from being driven by computing power to being driven by the market + sentiment + Wall Street.

Bitcoin spot ETFs, futures ETFs, and even ETFs for crypto mining companies are all different, which will fundamentally change the pricing and operating logic of Bitcoin.

Driven by capital appreciation, the concentration trend of existing Bitcoin chips will further deteriorate. Compared with other currencies, the concentration of Bitcoin holders is already quite dispersed. Coupled with the huge computing power of Bitcoin, it is almost impossible to attack or control the Bitcoin network to achieve 51%.

But this is the logic of PoW. If a large number of capital giants pour in, the Bitcoin network will to some extent become a PoS mechanism. Of course, this does not mean that the generation of Bitcoin will become a pledge mechanism, but that the excessive concentration of chips may lead to the opposite effect. In theory, spot is the pricing basis for derivatives, but under an overly long transmission chain, there is a possibility of imbalance in the regulation and pricing mechanisms.

We can recall the subprime mortgage crisis in 2007. Subprime mortgages mean that junk bonds are constantly packaged and sold based on preconditions. The original mortgage loans no longer have a significant regulatory effect on the market. Bitcoin also has the objective conditions to repeat this situation.

Spot goods are listed, consortiums fight each other, miners die violently, how pleasant it sounds

Bitcoin still lacks an ecosystem

The popularity of inscriptions and the second layer are still based on patching up the old mechanism.

The original purpose of Bitcoin has been talked about over and over again, and people are getting impatient - peer-to-peer electronic cash. During the bear market, small payment innovations based on the Lightning Network were tried in Latin American countries such as Argentina.

But now, people are picking up the sanctity of Bitcoin but abusing the block space in a cramming way.

In terms of the popularity of Bitcoin, the number of Bitcoin ATMs and active addresses on the chain have both been declining slightly recently. Bitcoin requires physical hardware to physically establish links between people and between people, and point-to-point. This may expand significantly with the ETF.

However, in terms of active addresses, Bitcoin has gradually deviated from the psychological expectation of 1 million, presenting a strange phenomenon of "blossoming on-chain and hot off-chain". Everyone is talking about Bitcoin, but they are gradually moving away from using Bitcoin. How can a currency, an electronic currency, circulate if no one uses it?

There is a logical paradox here: lack of ecology leads to no use, lack of use leads to lack of support for the coin price, weak coin price leads to miners selling coins, miners selling leads to off-market funds hoarding coins, and off-market funds gradually gain pricing power.

This is essentially the same as the Internet's spending money to occupy the market. As long as you spend money to occupy the market in the early stages, then after monopolizing the market, you can continue to collect "rent" and reap the dividends of each industry, from the battle between thousands of food delivery groups to the merger of Kuaidi and Didi in ride-hailing.

Nowadays, under the positive sentiment of ETF, Bitcoin's year-end options have reached more than US$51,000, seriously deviating from the spot market price. The price of Bitcoin has little to do with its function and the computing power of miners. It can be said to be the largest Meme Coin. The world is big, and the emotions are the biggest.

In a blink of an eye, the price of Bitcoin fell rapidly from US$45,000 to US$40,000, and the price fluctuations were comparable to those of altcoins.

Conclusion: The sanctity will go bankrupt

The spot ETF has not yet arrived, but the computing power pricing system that miners have established over the years has basically shattered. People often say that Bitcoin is different from other currencies. It is a unique firework that has gradually established a religious sacredness among believers. Now, once the dream is shattered, dust returns to dust. Don’t you see that you can’t even hear the voice of a miner? Perhaps they are still immersed in the enthusiasm of the inscription and the laughter of cashing out the currency.

Bitcoin spot ETFs can move forward and backward freely, but will the power of the last PoW miners become history?