In-depth view: Thinking about the survival of mining machine manufacturers in the new cold war environment

Preface

I have been in the Bitcoin mining industry for four years. In the Bitcoin mining industry and even the entire pan-cryptocurrency circle, four years often means several cycles of prosperity and decline. This industry is like a rose with thorns, full of temptations and traps. Outside the industry, black swans and gray rhinos often remind us of the fragility of the crypto industry itself (yes, it is too vulnerable to macroeconomics and geopolitics). There is a famous saying in "Game of Thrones": Chaos is a ladder. Some people profit from chaos, while others just take advantage of the fire and make wedding clothes for others. However, the clouds will clear and the moon will be bright. Before the new cycle comes, I will write down what I have seen and gained in the four years of immersion in the industry for all practitioners who have faith and move forward.

Cyclical phenomena and pseudo-decentralization of cryptocurrencies

When I first entered the industry, what impressed me most was the constantly fluctuating curve of Bitcoin. Volatility and cycles are the basic characteristics of the cryptocurrency industry. Countless tiny peaks and valleys depict price fluctuations like an electrocardiogram (no doubt, this is heart-pounding). Fluctuations tell us about the instantaneous changes in investors' supply, demand and confidence in Bitcoin, while cycles provide a historical perspective that depicts the industry's repetitive patterns. Given that the price of the currency spirals upward in each cycle, the cycle itself has become a relatively optimistic expectation. Here, I want to paraphrase Keynes: in the long run, someone will always survive.

Estimating the value of Bitcoin is inseparable from the long-term narratives surrounding it. The roots of these narratives are derived from the white paper released by Satoshi Nakamoto in 2009. It can be found that both the so-called "decentralization" (P2P technical practice) and digital gold as a safe-haven asset (Bitcoin's deflation mechanism) are based on a belief in "technology". However, it precisely ignores the role of human nature in the diffusion of technology.

As Bitcoin and its mining industry have developed to date, the "decentralization" I have seen is a false proposition. Today, the fact is that as upstream mining machine manufacturers, after multiple rounds of technological innovation and evolution, they have become highly centralized. Bitmain, Canaan, and Shenma alone account for more than 90% of the market share; the distribution of mining pools is also highly concentrated, with the top five mining pools controlling 90% of the global computing power; exchanges are even more so, with a high concentration in Binance, Coinbase, and other companies; the same is true for Bitcoin holders, with Satoshi Nakamoto, Binance, and the US government in the top three. Today, the cryptocurrency industry has transformed in the midst of a huge global economic and geopolitical conflict. It requires each of us to reset ourselves, break ourselves, abandon historical experience, and re-examine and learn humbly like newcomers.

1. Mining machine products and development trends under major changes

With the conflict between Eastern and Western civilizations, geopolitical influences, the rise of OPEC+, pressure from green environmental extremists, continued inflation in the US economy and the spread of the new Cold War of deglobalization, the continued rise in global traditional energy prices has become an indisputable fact , and it will continue for a long time in the future. Therefore, high-efficiency machines are the only choice for future miners . In addition, on the one hand, criticism of environmental pollution in Bitcoin mining is rampant, and on the other hand, extreme climate regions limit the physical boundaries of mining activities. The industry urgently needs new technologies and products to meet these potential challenges. In addition to traditional air-cooled machines, immersion liquid cooling is one of the options for next-generation technological breakthroughs and iterations.

In general, the factors to consider when measuring the development trend of mining machine products are mainly the following:

1. ASIC process : The performance of mining machines is mainly determined by the chip. At present, the 5nm process of mining machine chips has matured, and the 3nm advanced process is being improved. With the technical iteration and design progress of mining machine manufacturers, the technology of mining machine chips has matured in both design and production. Today, several major mining machine manufacturers can almost easily complete the design of high-efficiency mining machine chips on TSMC's advanced processes (5nm and 3nm), Samsung (5nm and 3nm), SMIC's N+1 and N+3. Judging from the machines produced by these three chips, TSMC is undoubtedly the best in terms of yield and performance, followed by Samsung, and then SMIC. These wafer foundries rely on "harvesting" the R&D investment of mining machine manufacturers to complete their advanced process of technology and technology. This is a kind of "love-hate cooperation where no one can do without each other". The author even thinks this is a "mistress-style love-hate relationship that cannot be made public." Because wafer manufacturers have always been known for their high-end consumer electronics and artificial intelligence (think of the PR crisis of gamers protesting Nvidia's "mining cards" and Intel's repeated attempts to make mining chips but to no avail). Some wafer manufacturers are reluctant to admit that it was actually the cryptocurrency mining business that gave them a blood transfusion in the early stages of their research and development, allowing them to complete the advanced process breakthroughs built on a large amount of US dollars.

2. Energy efficiency ratio (PE) will be the only competitive indicator : Throughout the fourteen years of Bitcoin, there have been cycles of bull and bear markets. In each bear market, the price of the currency plummeted, and because a large number of mining machines were shut down, the electricity price would also fall. However, this round of bear market that began in mid-2022 is the first time in history that the price of the currency has fallen and the price of electricity has risen. In addition, the upcoming fourth round of block rewards will be halved. In a sense, there is a sign of "strangling" the mining industry. Of course, the development of mining machine chip manufacturing process and the listing of high-efficiency machines have somewhat slowed down the "death sentence of mining". Therefore, in the future market, mining machine manufacturers are bound to compete in the market with low currency prices and high electricity costs. The PE of mining machines will become the only important performance indicator. Miners (as long as they have money) will choose high-efficiency mining machines. In today's market environment, 25 J/T is an entry-level existence. To have a market competitive advantage, it is necessary to develop and produce mining machines of about 20 J/T or less. From the perspective of machine form, in addition to traditional air-cooled machines, we should also fully promote the development and mass production of immersion liquid-cooled mining machines so as to better adapt to extreme climate environments and be friendly to human habitation.

3. Product parameters with competitive advantages in the next 6-12 months (before and after halving) :

Products with competitive advantages

PE: 20 J/T +-3%

Hashrate: 160 TH/s +-3%

Power consumption: 3200W +-3%

Entry-level products in the market

PE: 25 J/T +-3%

Hashrate: 130 TH/s +-3%

Power consumption: 3250W +-3%

Other mining machines with poor energy efficiency , such as those above 30 J/T, will be shut down and eliminated. Even if they are sold to customers with extremely low electricity rates or those who steal electricity, they are still uncompetitive. Moreover, the market for stealing electricity or "super cheap electricity" is very niche, very unstable, and suspected of being illegal, so don't spend manpower and material resources to cultivate such a market.

4. Why is immersion liquid cooling the future form of mining machine products and even the infrastructure?

The mining machine industry faces two major contradictions. One is that the investment in the research and development of advanced process chips is getting higher and higher, often hundreds of millions of yuan, while the performance improvement obtained is getting smaller and smaller. For mining machine manufacturers, this is a process of diminishing marginal returns on investment. For mining machine manufacturers, a technical path to achieve better energy efficiency with lower cost improvements is needed. Immersion liquid cooling is the technology with the highest heat dissipation efficiency. In this environment, it allows the machine to improve performance by overclocking without chip upgrades. The combination of immersion liquid cooling and containers has a smaller footprint, a higher degree of modularity, low noise, and can overcome the impact of extreme climate and windy and sandy weather. It is expected to become the infrastructure of the next generation of mining.

Another contradiction in the mining industry is that the computing power of the entire network and the difficulty of mining have repeatedly reached new highs, but the block rewards have been halved. Therefore, for miners, this is also a process of diminishing returns on investment, and only large miners can win. It can be seen that the integration of the industry will be further intensified in the future. In turn, the integrated mining machine industry has more abundant funds and motivation to promote product iteration and mine construction, which provides a prerequisite for the large-scale application of immersion liquid cooling technology.

2. Market and sales forecast: the relationship between supply chain, spare parts inventory and sales

Wafers and foundry: Generally speaking, the mass production cycle of wafers is 4-6 months. Due to the historically strong position of wafer manufacturers, mining machine manufacturers usually need to pay in full or at least 50% in advance to lock in wafer foundry. This has brought considerable cash flow pressure to mining machine manufacturers. Coupled with the unpredictable bull and bear cycles of Bitcoin, it has increased the uncertainty of future sales and shipments for mining machine manufacturers. In order to solve this dilemma for mining machine manufacturers, only by doing a good job in market forecasting and sales strategies can risks be successfully avoided. The author believes that according to market conditions and supply chain conditions, it is necessary to control the proportion of spot sales, increase the proportion of futures sales, and continuously optimize the customer structure to reduce risks. The specific strategies are as follows:

1. Futures sales strategy : 80% of the output is used for futures sales, with delivery in 6 months, monthly batches, and average monthly shipments. This strategy can ensure balanced, efficient and sustainable operation of production and supply chain. It can effectively reduce the cash pressure of wafer (chip) inventory, reduce the procurement cost of auxiliary materials and other accessories, and improve supply chain efficiency.

2. 50% prepayment strategy : The customer needs to pay 50% of the total contract amount as a prepayment within one week after signing the contract, which is used to lock in the unit price and production capacity, and also guarantees the large amount of cash flow required by the mining machine manufacturer to purchase wafers. This strategy guarantees two things. First, it guarantees the cash flow required for normal R&D, production and procurement of mining machine manufacturers, and second, it shares the risks brought by a possible bear market. Because 50% of the prepayment can almost cover the cost of the machine.

3. 2:8 Principle of Key Customer Strategy : As mentioned at the beginning, the decentralization of this industry is a false proposition. It is actually a highly centralized industry. In particular, mining business requires a lot of capital and technical support. Those who can survive the bull-bear cycle are generally "big miners" who have technology, capital and team. They are more motivated by long-term strategy and business layout for mining, unlike retail investors who aim at short-term speculation. Therefore, key customers often have a strategic coexistence, win-win and co-prosperity partnership with mining machine manufacturers, and are the mainstay of the cryptocurrency industry. Retail investors are at best a supplement to the layout of mining machine manufacturers, because the life cycle of retail customers is too short and the liquidity is too strong to maintain long-term cooperation. According to the author's observation, in the past 5 years, few retail investors have survived a season. In the early days of the industry, except for Bitmain, most of the customers in the mining machine industry were domestic mining and domestic retail miners, and there were almost no international key customers. In the past four years, I have seen that all mining machine companies have gradually established a strategic customer system with international major customers as the basic base. The customers include well-known old mining companies and emerging US listed mining companies, such as Genesis, Hut8, CoreScientific, Bitfarm, Bitfury; and emerging listed companies such as HiveBlockchain, Mawson, IrisEnergy, Marathon, Riot, etc. The sales revenue from major customers is stable at an average of more than 80%, which is a stable revenue base.

3. Sales Operations and Sales Management

1. Market forecast: Generally speaking, sales operations should prepare a rolling forecast every three months for the next 12 months. However, it is not easy to prepare such sales forecasts in the Bitcoin mining machine industry, and there is no regularity to follow. An absolute forecast cannot be made, but a basic forecast can still be made. For example, by combining futures orders with market trends, a rolling sales forecast every three months can be made. Since mining machine production is from wafers to products, the supply chain is particularly long, which requires sales operations to have professionalism and market grasp to make the most accurate forecast possible and reduce out-of-stock or inventory.

2. Sales price: The price of mining machines is very transparent. The market is not big and there are not many players. In addition to pricing based on experience and cost, mining machine manufacturers should consider factors such as channel inventory, mining machine positions and power resource supply in the next 3-6 months, currency price, electricity price and total network computing power. In terms of pricing, generally speaking, the price with a payback period of 12 to 18 months for miners is a competitive price. 18 to 24 months is average, and 24 to 30 months is basically difficult to sell. Most miners are speculative. On the one hand, they just want to make quick money, and on the other hand, they have no ability to predict the medium and long-term trend of BTC.

3. After-sales service: The working environment of the mining machine is very poor, so the stability, roughness resistance, easy operation and maintenance, and easy replacement of the mining machine are important indicators. In addition, timely after-sales service is of paramount importance. In a normal mining environment, time is BTC, so stable and rough-resistant machines and timely after-sales service are also important options for miners to consider when purchasing.

4. Sales reports and CRM: This industry is different from traditional fast-moving consumer goods or traditional IT industries. It is more like a speculative industry similar to finance. Therefore, sales analysis can only be a true reflection of current data, and should not have much reference significance for history and the future. On the contrary, data such as currency prices, mining machine positions, electricity prices, network computing power, and difficulty coefficients are more realistic and guiding for sales. Customer data in CRM is cyclically eliminated, with a low retention rate. Long-term customers are mainly a dozen KA customers, and most small and medium-sized retail investors died before the dawn of the bull market.

4. Channels: Opportunities and risks coexist

Any industry, whether 2B or 2C, cannot do without "channels". Take the fast-moving consumer goods industry as an example. Some people once believed that channels were king, and mistakenly believed that if they had channels, they had everything. Distributors and agents often ended their dreams at the speed of masturbation. Brand merchants firmly attached consumers with products, brands and services, and also severely taught channel merchants a lesson. In the field of fast-moving consumer goods, channel merchants have been educated and matured. After nearly 20 to 30 years of development and management, channel merchants have given up their early arrogance of self-righteous channels being king. Today, they have almost become "willing" green leaves of brand merchants. The low-profile attitude of quietly making money under the big banner of brand merchants has become their norm and three views. It is in line with the old saying: make a fortune in silence. However, looking back at the development of the 2B industry, channel merchants are developing in an increasingly professional direction. They not only need to expand channels, provide pre-sales, in-sales and after-sales technical support, and improve solutions, but also have strong funds to support stockpiling. Indeed, such channel merchants also have more voice and decision-making power. It is precisely this "desire for power" that makes their "ambition" to change the situation possible, often unconsciously disrupting the brand's channel strategy, pricing strategy, inventory strategy and customer management strategy, and inadvertently standing in opposition to the brand.

1. Channels are like water, they can carry a boat or overturn it.

Channel management is a complex management art. It is not a cold channel, but more of an understanding of human nature. The game between brand and channel dealers on desire expectations is also a touchstone of sales personnel's humanity. When brand dealers are in a weak position, channel dealers will maximize their own interests regardless of the interests of brands and customers, quickly harvest all the benefits that can be harvested, and short-term speculation is very clear. In this case, there will often be mutual dumping between regions/channel dealers, snatching customers, smashing prices, resulting in the brand dealers themselves being unable to ship normally, heavy inventory pressure, and chaotic market prices. There are constant complaints from customers outside, and internal sales staff competition and internal consumption. Brand dealers are kidnapped by channel dealers, not only losing profits, but also offending customers. When channel dealers are in a weak position, brand dealers often accuse channel dealers of poor expansion and delaying business opportunities. Looking at the development and routines of channel dealers in the mining industry in recent years, they use a very skilled strategy of closing the market in the bull market, playing cards and drinking, and setting up a game in the bear market to explore the bottom and cut the leeks of mining machine manufacturers.

(1) Bull market: Do not participate in the rush to buy mining machines at relatively high prices. Instead, watch from the sidelines while friends eat, drink, play and play cards. If you see an opportunity, take a chance and quickly sell it to make a profit.

(2) Bear market: From time to time, they tease the mining machine manufacturers who are under the dual pressure of inventory and cash, set up a trap and give them a gift, and trick the mining machine manufacturers into signing a "so-called mortgaged installment payment contract", but the down payment ratio is very low, which locks the price and production capacity of the mining machine manufacturers. Turning around, they call orders in the market, add a little price (their quotation is lower than the official price of the mining machine manufacturer), and resell the machine or even resell the contract. The result is that the market price is chaotic. As long as the channel dealers' inventory machines or the machines on the contract list are not sold out, the mining machine manufacturers' inventory cannot be sold, because the price and shipment are completely controlled and hijacked by the channel dealers. The channel dealers make money, and the mining machine manufacturers are cut off.

2. The chaos of channel management in the mining machine industry from the perspective of several leading manufacturers

(1) During the bull market, mining machines are in short supply, and miners and agents have difficulty getting them. On the one hand, the leading manufacturers retain the largest sales profits in their exclusive sales companies, and on the other hand, sales or agents add layers of price increases, which sometimes encourages lower-level kickbacks. From the market side, what we see is that prices are opaque, prices are added layer by layer, customers have a very poor sales experience, and their reputation for integrity is very poor, leading to the loss of major customers.

(2) In a bear market, due to the pressure on channels to stock up in the early stage, once the bear market comes, agents panic and choose the strategy of dumping goods and running away, which leads to instant market price chaos. Miners and channel dealers are desperate to ask mining machine manufacturers to refund money, return goods and issue coupons to make up for losses. If manufacturers have sufficient cash, they can actually accept refunds to make up for the difference, but the problem is that when a bear market comes, who has extra cash? Who doesn’t want to reserve a little more cash to survive the winter? What’s more, the original purchase price of miners and channel dealers is not necessarily the first-hand manufacturer price. Since the bear market this year, channel dealers have collectively turned against them and repeatedly staged lawsuits.

(3) A large amount of channel inventory is piled up, and price cuts and dumping are imminent: According to incomplete statistics, there are about 1 million channel inventories in the market, including inventories of agents and mining companies that have not been put online. With the continuation of the bear market and the upcoming halving, the iteration of the new generation of mining machines has been completed, and the current channel inventory machines are about to become scrap metal. In order to minimize losses, the leading manufacturers will definitely cut their losses and sell their products in time. In this round, if individual leading manufacturers can cut prices and dump their products in time, they can kill two birds with one stone. On the one hand, they can solve the inventory pressure, and on the other hand, they can crush other manufacturers before the dawn of the bull market. If other manufacturers want to survive, they need to make a faster and more ruthless sales and pricing strategy, a precise price sniping strategy.

3. 2B business model: large customer model vs individual customers, retail e-commerce:

(1) Mining machine sales are a simple 2B business. Large customers bring large sales, and the professionalism of customers is the foundation. E-commerce retail and individual customers are just supplementing the gaps. Some mining machine manufacturers are wishful thinking about retail individual customers and e-commerce, thinking that they can support the company. In fact, whether it is Bitmain, Shenma or Avalon, 80% of sales come from less than 20% of large customers.

(2) Communication and service costs between major customers and retail customers: Major customers have professional operation and maintenance and engineering teams, and after-sales service and updates are handled by dedicated personnel, which is efficient and labor-saving. Retail customers lack a team, and often a small firmware update or a power outage or power-on requires the involvement of a group of after-sales engineers from the mining machine manufacturer. Often, they do not understand the problem themselves, and end up complaining to the manufacturer. For the manufacturer, this is a thankless task. Since the business is not big, they cannot afford to skimp on any service.

5. The Smokeless War between Miners and Mining

1. Early miners were mainly from mines in Yunnan, Guizhou, Sichuan, Xinjiang and other places in China, mainly using thermal power and hydropower during the flood season. The electricity cost and operation and maintenance cost of mining were very low. They deployed 10,000 machines and hired 3-5 rural children who graduated from high school. After a little training, they could start working and maintain the operation of the mines. Therefore, China's mining industry has a very large competitive advantage. For a time, China accounted for 70% of the global network computing power. The miners of this period were basically the first batch of Bitcoin adventurers and pioneers in China. They were either speculators with some spare money and keen eyes, or technical men involved in blockchain and BTC. After several rounds of bull and bear cycles, this group of miners has gradually become fixed. There are only a few large miners in China, which are quite concentrated, just like mining pools and exchanges. The nature of mining dictates that miners must obtain the most Bitcoin at the lowest cost, so stealing electricity or using low-cost electricity is their first choice. As a result, their relationship with local officials has become an important part of their interests, and they are often in collusion with each other. As a result, the Chinese government later introduced a series of policies to combat corruption and promote green carbon neutrality, which, in turn, also eliminated mining activities in various places.

2. On September 3, 2021, the National Development and Reform Commission and other 11 departments jointly issued a document to regulate virtual currency "mining". Then on September 24 of the same year, the central bank and other ten departments issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation", which directly shocked the currency and mining circles in China. When they woke up, the first action they took was to "move the platform and employees overseas" and "dismantle the mining machines to Kazakhstan, a friendly country in Central Asia on the border of Xinjiang."

(1) Kazakhstan not only has cheap electricity, but also has laws that clearly stipulate that mining is legal and mining machines are tax-free. Overnight, it became a paradise for Chinese miners. In just three months, from October to December, Kazakhstan's Bitcoin hash rate rose to 30% of the total network hash rate, and it jumped from being unknown to becoming the world's second largest hash rate contributor. The structure of miners during this period also changed accordingly. In addition to Chinese miners, Kazakhstan's energy-based participants were added. However, the good dream did not last long. On January 6, 2022, riots broke out in Kazakhstan, shattering the dreams of all Chinese miners and the short-lived dreams of Kazakh miners who had just tasted a little sweetness. From then on, Kazakhstan's mining policy, tax policy and electricity price embarked on a road of "self-inflicted disaster". A large number of Chinese miners then fled Kazakhstan, carrying machines and Bitcoins, rushing day and night, heading straight for what they believed to be the next golden land - the United States.

(2) The US market and US miners, which had long been crushed by Chinese mining machines and miners, saw hope and seized the opportunity to seize mining resources. They invested heavily in the US, especially in Texas, increased leveraged Bitcoin financing, built mining farms and bought mining machines. For a time, US mining companies "sprouted" like mushrooms after rain, and a large number of Chinese miners poured in. In just a few months, the US computing power rushed to the top of the world. The miner structure of this period also added institutional investors with Wall Street backgrounds and a number of listed mining companies. At this point, the United States has completed the strategic engulfment of all Bitcoin mining from the bottom to the upper exchanges. The Bitcoin Kingdom strategy of dominating the world with global computing power, global exchanges and global mining pools is now the only thing left, which is the last small link that mining machine manufacturers have not been "cheated/forced" to the United States. However, it seems that it is only a matter of time before this step is completed.

(3) At present, the miners who are still alive can basically be divided into: energy-based miners, institutional investment-based miners, traditional old-brand mining companies and emerging NASDAQ-listed mining companies. Among them, the most capable ones are the old-brand mining companies. They have gone through all kinds of ups and downs and still stand firm. The main reason is their understanding of the industry, their control of risks and their timely prediction of the bull-bear cycle.

6. Mining operations and strategies

1. Three major risks of mining business

(1) Risks of policy and regulatory transactions: Looking at both domestic and foreign markets, mining business is a high-risk business. Uncertain risks at the policy level of various countries can be seen everywhere, come at any time, are unpredictable and cannot be avoided. Legality, tax compliance, compliance of transactions between fiat currency and BTC, how to avoid dirty currency risks, etc.

(2) Risks of electricity prices and power supply: Electricity prices are the most basic factor in determining whether mining is profitable and whether investment recovery is fast. Maintaining a stable and low electricity price is the only way to ensure profitability of mining business. In addition, a stable power supply, 24 hours a day, 7 days a week, is also a key factor in stable profitability.

(3) Risks of partners: The high profits in this industry often arouse human greed. To avoid the risk of partners “eating the thieves and then closing the door to beat the dog”, it is necessary to avoid cooperating with short-term opportunists, speculators, and unfamiliar customers in mining business.

2. Selection of mining business partners: three types of partners

(1) Resource-based customers: They are reputable local companies and entrepreneurs who own energy resources, social status and honor. Such customers are unwilling to violate laws and regulations, and will not rob others for a small profit. Often, such customers can also help mining machine manufacturers to establish some local government relations, which is conducive to the extension and sustainable development of mining business.

(2) Emerging listed companies (clients): North American listed mining companies. They are professional and regulated, with mature technology, efficient operation and maintenance, and financial compliance. They also have institutional investment and abundant funds. They focus on reputation and long-term development, have long-term plans, and are good strategic partners for mining business.

(3) Old mining companies: They are the evergreens in this industry. They have been operating in the mining and cryptocurrency circles for many years. They are very professional, understand the industry, have technology, and are good at operation and maintenance. They are the partners of experts. However, they are also the old hands in the industry who are good at calculating small accounts and shortchanging others. If you cooperate with them, you will be easily taken advantage of by them. Of course, it can also train the team and improve the self-operated mining operation and management capabilities of the mining machine manufacturers.

3. Why start mining business?

(1) In a bull market, the mining business can continuously bring cash (BTC) to mining machine manufacturers every minute and every second, just like a money printing machine, which can enable the company to quickly increase its revenue volume, increase the company's market value and the value of diversified operations.

(2) In a bear market, the price of machines may fall below the production cost. It is better to sell the machines and put them into mining farms for self-operated mining. On the one hand, it acts as a shock absorber for the supply chain and maintains normal production and supply chain operations. On the other hand, it reduces inventory and maintains a low level of operating income. Once the bull market comes, the machines and mining business can be sold together to obtain greater profits, and mining can continue to obtain the huge value brought by BTC. The two hands can be switched freely.

(3) Computing power and computing power business: Build a computing power platform and computing power sales business, and seamlessly evolve the simple mining machine manufacturer business into a high-end business model of computing power sales and computing power securitization.

4. Where will the mines of the future be?

(1) There are various signs that the US government is killing cryptocurrencies. In order to maintain the dominance of the US dollar, they are systematically killing Bitcoin trading platforms (FTX, Coinbase and Binance are the best recent examples). In addition, in the past year, various US states have introduced a number of unfriendly policies against mining (such as construction environmental assessment requirements, electricity prices, taxes, etc.). I believe that in the near future, the US government will "close the door and beat the dog" style to kill mining companies all at once. The current 3,000 MW mining farms in the United States will be killed overnight, and there will be no more Bitcoin mining in the United States. In short, the US market will no longer exist. It will be very dangerous to continue to layout the US market now, and investing in mining farms in the United States is an unwise decision with high risks.

(2) Kazakhstan: A typical Central Asian government management model, with corrupt bureaucrats pretending to know what they don’t know, and they are responsible for their own mistakes. Since the turmoil in January 2022, the government has successively introduced a series of unfriendly policies against mining and trading, which have directly destroyed Kazakhstan’s prosperous mining industry. From ranking second in the world, accounting for 30% of the total network computing power, it has been cut to less than 5%. The author is curious, is this the outcome that Kazakhstan wants today, or was it the US government that instigated Kazakhstan to do so?

(3) South America is the next choice for mining: it has abundant hydropower, cheap electricity, cheap sites, and relatively friendly policies. For example, Uruguay, Paraguay, Mexico, etc. The disadvantages are low political stability, low transparency, and poor policy continuity.

(4) Middle Eastern Arab countries: Cheap electricity, cheap sites, and friendly policies. Liquid-cooled machines can adapt to extreme climates more efficiently and better. The downside is that the annual power supply efficiency is less than 70%, various resources are highly monopolized, and "traditional Arab business etiquette is lengthy."

(5) Northern African countries: rich in electricity resources but lacking in industry, mining is the best industry to rapidly develop the local economy and can receive strong support from the current government. The risks are political instability and poor security. Recently, countries with abundant hydropower resources and cheap electricity prices include Ethiopia.

(6) Russia: It has abundant electricity resources, the mining industry developed earlier, and there are a large number of very mature practitioners. The disadvantage is that Russia is subject to US sanctions, the business environment is not good, and the spirit of contract is a little weak.

(7) Iran: We need to talk about Iran separately because they have been mining continuously, using second-hand mining equipment from the market. They are under the control of the National Guard and they are mining secretly. It seems that they have never stopped.

7. Mining machine manufacturers going overseas: Both globalization and localization strategies must be grasped and both hands are strong

The world economy has flourished under the development of globalization over the past 30 years, especially developing countries led by China have benefited a lot, with rapid economic and technological development, becoming the beneficiaries of globalization. Since China banned the mining industry in 2021, North America, Central Asia and other regions have increased their support for the mining industry, and Sichuan, the "mining capital" popular on the Chinese Internet, has also given way to Texas in the United States. Various mining machine manufacturers have sought to go overseas. The author believes that in terms of corporate business, it is completely correct for mining machine manufacturers to adhere to the strategy of globalization. The key is how to implement the globalization strategy and how to go about the globalization path?

1. Grasp both sides and make both sides strong: The local talents and local economic foundation must be strong. Only with a strong local foundation will we be able to go global and take solid steps. Only then will globalization have talent reserves, economic support and material foundation. Otherwise, even if we are forced to "globalize" overseas, we will lack endurance and be short-lived. At best, we can be called "affairs".

2. The path to globalization: Looking at China's economic development over the past three decades, in the traditional physical field, except for the photovoltaic industry, Chinese companies are mostly limited to cheap labor and commodity exports, and there are few products and companies with original technology going overseas. In the field of Internet and communication equipment, the more successful benchmarks for going overseas in recent years include Huawei, Transsion Holdings, and entertainment companies represented by ByteDance and Mihoyo. The uniqueness of the mining machine industry lies in that no matter how much doubt it has passed, it represents a combination of high-end manufacturing and emerging finance to a certain extent. In the past few years, due to the high degree of monopoly in the industry, the overseas expansion of mining machine manufacturers has been limited to product exports, and the supporting service capabilities have lagged behind. At the same time, the cyclical switching between strong sellers' markets and strong buyers' markets has left mining machine manufacturers with no sufficient motivation to build service capabilities. However, after 2021, with the rise of institutional clients, mining machine manufacturers have gradually realized the importance of service.

At present, some mining machine manufacturers have begun to build service stations and branches in overseas markets, which is a good thing. But at the same time, it should be noted that globalization still needs to build teams from a local perspective, adapt to local conditions, and be familiar with local laws, regulations, work habits and culture to maintain long-term customer relationships, so as to gradually build a moat of service capabilities. These are not overnight achievements, and it takes small steps to replicate successful management and business models. Rome was not built in a day, and there is often only one way to success, but there are traps on the road to failure. What I have seen with my own eyes is that some companies are blooming everywhere, and the nomadic model of racing and encircling land will eventually run out of resources and return home in failure.

3. The U.S. government and cryptocurrency: The U.S. government has a complicated relationship with cryptocurrency, and obtained a large amount of Bitcoin by strangling the Silk Road. The anonymity and black transactions of cryptocurrency, as well as the provision of funding channels for countries on the sanctions list such as Iran and Russia, are not allowed by the U.S. government. They will not tolerate challenges to the hegemony of the U.S. dollar, just as they are unwilling to accept China's peaceful rise. After a series of explosions such as Three Arrows Capital and FTX, the SEC's successive lawsuits against Coinbase, Binance and Tether show the U.S. Democratic government's determination to kill cryptocurrency.

4. Tether and its strategy: As the world's largest stablecoin, it is crucial to maintain the stable development of the BTC market. According to a senior practitioner, a senior executive of Tether recently revealed that they would allocate a fixed ratio of their annual profit of $4 billion to purchase BTC. At the same time, they would also expand their mining business and invest hundreds of millions of dollars each year to support computing power and the motivation of mining machine manufacturers. In this way, Tether has become a rare Don Quixote in the industry. The author would like to make a bold assumption here that in the context of the bank run sweeping crypto-friendly banks, Tether's ambition may be to play the role of the "Thai Fed" in the crypto industry and rely on a key rescue to completely secure its position as the leader in the industry.

8. Some speculations about the near future

The development of Bitcoin cannot be controlled by a government or an institution, especially in the conflicts between Eastern and Western civilizations today and in the future, geopolitical conflicts, conflicts of monetary hegemony monopoly, energy tensions, the new Cold War under deglobalization, etc. The world may need cryptocurrencies more, especially Bitcoin.

The periodic reappearance of "institutional bull"

From 2010 to now, Bitcoin has been unilaterally declared "death" 474 times (see 99Bitcoins), which is enough to show that Bitcoin is an indestructible young man. What I have observed is that after a series of explosions and baptisms, Bitcoin has shown signs of revival. The US government and institutional investors often do their own things for Bitcoin. In the view of the US government, the hegemony of the US dollar is the core, and Bitcoin is at most a black glove, so don't think of whitewashing. In the view of institutions, it is really good to be able to cut leeks. BlackRock, the world's largest asset management company, personally pushed Bitcoin spot ETFs, and its application record for ETFs is also a win-win situation. If successful, in the near future, there is a high probability that the institutional bull market will still be seen in 2021.

Institutional entry will further promote the changes in the fund structure of the Bitcoin industry. In the early years, the currency circle and mining circle were basically speculators with full gambling nature, and they often make a fortune or lose all in the short term. Therefore, the industry has always been a few people who "get rich in silence". In late 2018 and early 2019, institutional investors, family funds (old money), and companies with traditional energy backgrounds gradually appeared. The components of the industry are gradually changing. When the old money enters the market, the currency price also begins to dance with Wall Street. Of course, this means that Bitcoin will be less volatile.

Bitcoin’s “subject” doesn’t matter, it’s very important to make money

As for the compliance of cryptocurrencies, it has always been volatile. The SEC and CFTC have a daily fight. In recent days, US senators will launch a revised version of the cryptocurrency regulation law to expand the power of CFTC, which stipulates that even non-decentralized assets can be regulated as commodities as long as they do not involve corporate debts and equity. It seems that Americans also understand the "wisdom of future generations", and the issue of Bitcoin surnames will be put aside the dispute. At present, the inflation of the United States is not as low as US debts and CFTCs cannot find a takeover, and the reputation of the US dollar has been further damaged. Silently throwing coins is also one of the measures by the US government to recover the US dollar to boost confidence. Therefore, in this context, it remains to be seen whether the compliance of cryptocurrencies is truly compliant or old wine in a new bottle. However, for a generation of new leeks to replace old leeks, as long as the liquidity is still there, you can continue to play music and dance.

Asia still cannot be ignored

In 2021, China put a heavy blow to Bitcoin. Two years later, the United States sued Binance and Coinbase, and now China acquiesced Hong Kong's support for Web3.0 and cryptocurrencies. It can be seen that governments of various countries' attitudes towards cryptocurrencies are ambiguous. In the past two years, funds have begun to return to Asia, Singapore is in full swing, and Hong Kong does not want to give up its position as the number one financial leader in Asia. Singapore and Hong Kong compete with each other, and in the process of continuous competition for funds, the biggest winner is definitely cryptocurrency. It is worth noting that in June 2023, Japan's "Amendment of Funding Act" was voted by the House of Lords, becoming the first country in the world to issue a stablecoin bill. In the visible future, Asia is still an important pole in the cryptocurrency industry. In addition, in the context of the global economic downturn, more and more governments in small countries in Africa and South America are also open.

Under the new Cold War pattern, the results of the US government's supervision of Binance and Coinbase are also different. Binance Binance has only 0.9% of the market share in the United States, while Coinbase's market share in the United States jumped from 48.4% to 55% in June. On the secret front of cryptocurrencies, China and the United States may support their respective centralized exchanges to attract overseas funds and take measures to prevent large-scale escapes when necessary.

: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : The current sharp decline in mining taxes also shows that the country's mining industry needs some time to recover to rebuild its confidence in capital. In addition, improving the efficiency of electricity use requires the introduction of more advanced machines and equipment, so in the future, the country may see that the government will loosen its value-added tax and digital mining taxes related to mining machines imports.

Green Mining: The "Call of the Declaration" that Bitcoin Mining must submit

After the last "crypto winter", Bitcoin mining entered a consolidation period. Current situations facing Bitcoin mining: 1) Political correctness: the sustainability of Bitcoin mining under the carbon reduction framework; 2) Funding source: Bitcoin ETFs are a double-edged sword for mining. The launch of ETFs will undoubtedly raise the price of coin and help miners' returns, but ETFs provide institutional investors with zero threshold deposit channels. Since that is the case, who will spend time on large-scale mining infrastructure and equipment purchasing? 3) Listed mining stocks have begun to look for new narratives of so-called "diversified income", that is, using mining graphics cards to make AI.

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