A real look at Shenzhen Huaqiangbei, which is in decline after the virtual currency plunge: The graphics card and mining machine business is quiet, should we change careers or stick to it?

The Federal Open Market Committee will announce the next interest rate adjustment at 2 a.m. on July 28, with an expected increase of 75-100 basis points. The panic before the Fed's rate hike caused Bitcoin to fall back to the $19,000-22,000 trading range. On July 25, the largest digital token fell 4.3% and traded at $21,820, a far cry from the peak of $68,000 per coin reached in 2021.

However, when the price of virtual currency plummeted, graphics cards and mining machines, which are important components for producing virtual currency, could no longer support their previous high prices. The graphics card and mining machine business in Shenzhen Huaqiangbei electronic products cluster also fell to a low point.

On July 26, a reporter from the China Times visited SEG Plaza in Huaqiangbei, Shenzhen, and found that many stores that used to sell mining machines and graphics cards had closed down, and many had posted signs saying "shops for rent." However, a few merchants chose to stick to their business and wait for the next opportunity to get rich. "Although I didn't make much money this year, I believe that Bitcoin will definitely make a comeback one day," a merchant who sells both graphics cards and mining machines told our reporter.

Graphics card and mining machine business hit a low point

On July 26, a reporter from the China Times visited SEG Plaza in Huaqiangbei, Shenzhen, and saw that there were few customers on weekdays, and graphics card and mining machine stores were also rare. However, from some shops whose signs had been removed, traces of the word "mining" could still be vaguely seen - "Serving every miner well is the first rule of the company" and "Professional miner service" and other advertising slogans were still eye-catching, but a computer accessories salesperson on the third floor of SEG Plaza told our reporter: "This store has been closed for a long time."

At the beginning of 2021, as large companies and investment institutions such as Tesla and Mastercard bought large amounts of Bitcoin and the various economic stimulus plans of the US government gave rise to inflation, the price of Bitcoin began to rise from US$29,000 to around US$64,000; by May 2021, the price of Bitcoin plummeted and fell back to US$29,000, but then, against the backdrop of increasingly serious inflation in Europe and the United States, the price of Bitcoin set a new record of US$69,000 in November last year.

It is worth noting that the rise of Bitcoin in 2021 has led to a large number of people pouring into the virtual currency market, buying a large number of graphics cards and mining machines, relying on these graphics cards and mining machines to "mine", which has caused the price of graphics cards and mining machines to rise. In fact, since the large-scale mining boom in 2020, many second-hand graphics cards that have been released for many years have even risen above the original price, and Shenzhen Huaqiangbei graphics card and mining machine merchants have also continued to stage a myth of wealth creation.

However, in 2022, many virtual currencies, including Bitcoin, plummeted. Many "mining bosses" chose to sell their graphics cards to recoup their investments and exit the circle. A large number of "mining cards" flooded into the second-hand market. Coupled with the weakening demand for "mining", the price of graphics cards fell.

The reporter of China Times walked through SEG Plaza and found that there are only three stores that still focus on graphics cards and mining machines. However, after hearing that the reporter planned to buy 500 mining graphics cards, the merchants said, "The current market is not good, we certainly dare not import so many spot goods, but the entire market is circulating, we can help you transfer goods, and they may be shipped from Hong Kong. However, the inventory of graphics cards of the same model is basically around 20-100, and 20 is generally the most common, so you need to choose different models."

At the same time, compared with last year's market, the current prices of graphics cards and mining machines have dropped by about 30%-50%. A merchant who mainly sells graphics cards told our reporter: "Graphics cards are currently priced significantly lower. For example, the price of Asus 3090 Beast was more than 15,000 last year, and now it's priced at 10,500, which is a good deal." At the same time, a merchant who sells both graphics cards and mining machines also told our reporter: "The price of mining machines has dropped by about half this year. A mining machine that cost 120,000 last year can be bought for 60,000 to 70,000 this year. The Federal Reserve will cut interest rates in a few days, and the prices of graphics cards and mining machines will drop further."

In addition, another merchant selling graphics cards and mining machines told our reporter that the drop in prices of graphics cards and mining machines occurred after the plunge in Bitcoin, and had little to do with China's regulatory authorities' crackdown on Bitcoin mining and trading in May 2021.

In fact, after Chinese regulatory authorities cracked down on Bitcoin mining and trading, Xinjiang, Sichuan, Shanxi and other places strictly investigated Bitcoin mining business, and many large mines were closed down. However, this did not suppress the rising sentiment of "mining" in China. Domestic virtual currency "mining" has migrated overseas. The graphics card and mining machine business in Shenzhen Huaqiangbei has not been greatly affected. A merchant revealed to our reporter: "Last year, my mine in Shanxi was closed down due to strict inspections, and then I put the machine abroad. However, there are still some small mines operating in China. The most important thing is to block the signal."

At the same time, the reporter also found that many businesses that used to be engaged in mining and graphics card business have now switched to selling cameras or installation services. "Graphics cards are not selling well now, so we switched to regular business for stability." One merchant said.

Will Bitcoin continue to fall?

After the June CPI data "exploded", the outside world believed that the probability of the Fed increasing the rate hike to 100 basis points increased sharply. But then Fed officials "put out the fire" and voiced support for continuing to raise interest rates by 75 basis points. At the same time, the CME FedWatch tool shows that the probability of a 75 basis point rate hike is 78.7%, and the probability of a 100 basis point rate hike is 21.3%.

As the Federal Reserve signals an acceleration of monetary tightening, financial markets are plunged into uncertainty. In this situation, how will the cryptocurrency market perform?

One view is that as the Federal Reserve raises interest rates, funds in the market will flow into safe-haven assets, and cryptocurrencies will also follow stocks in a downward trend.

Wang Peng, associate professor at the Center for Intelligent Social Governance at Renmin University of China, told our reporter: "The Fed's further interest rate hikes and further pumping money into the market will actually have an important impact on financial assets, international futures, and stock indexes."

Another view is that the Fed’s interest rate hike has nothing to do with the price of Bitcoin.

"Strictly speaking, the correlation between Bitcoin prices and the Federal Reserve's monetary policy is not very direct." Zheng Lei, chief economist of Samoyed Cloud Technology Group, told our reporter.

At the same time, Wang Linggang, a senior lawyer at Fangda Law Firm, pointed out to our reporter that "TED's interest rate policy has no theoretical or empirical correlation with the price of BTC."

Unlike traditional currencies, Bitcoin is not issued by a central bank or backed by a government, and monetary policy, inflation rate, and economic growth indicators that usually affect the value of a currency do not apply to Bitcoin. Instead, Bitcoin prices are mainly affected by factors such as the cost of producing Bitcoin during the mining process, Bitcoin market supply and demand, and the attitude of the international community toward Bitcoin.

In this regard, Zheng Lei said: "The international community's regulatory attitude towards Bitcoin will have a great impact on Bitcoin prices. In the past year, the regulation of Bitcoin has become significantly tighter. The United States has also strengthened its supervision and regulation of the cryptocurrency market and strengthened its efforts to prevent sanctioned targets and terrorist organizations from evading sanctions through cryptocurrencies. On the other hand, as financial market investors avoid high-risk investment products, a large amount of funds have flowed out of the Bitcoin and other cryptocurrency markets, which has also caused Bitcoin prices to fall."

At the same time, Wang Peng said: "In addition to its own value determination such as mining, Bitcoin actually has very strong financial derivative attributes, which affect prices through supply and demand and market manipulation, the most important of which is expectations. In addition, Bitcoin transactions have no fixed trading venue, no information disclosure, no price limit, and no trading time limit. Therefore, in this process, it is very easy for liquidity to be trampled. Once the market fluctuates or expectations change, there will be sharp rises and falls."

Regarding the future price of Bitcoin, Zheng Lei said: "Bitcoin is an asset with a limited amount and a long-term trend of rising. Investors can allocate a small amount as a diversified investment, and it is not advisable to bet against its price fluctuations at any time."

Wang Peng put forward a different view. He believed that "in the long run, the Fed's interest rate hike will still put downward pressure on Bitcoin. I don't think this is the lowest point in the short term."