Miner's Wanderings: In two months, I will be bankrupt

Author | Qin Xiaofeng

Editor | Mandy

Produced by | Odaily Planet Daily

At 11 p.m. last Saturday, a short video was widely circulated in the circle of friends of crypto practitioners. A number of KOLs forwarded it with the caption: The end of an era.

In the video, hundreds of mining machines are neatly arranged on racks, and several workers are turning off the power of the mining machines one by one; the sentimental background music and the repeated "Bye" are not only a farewell to the mine that is about to be closed, but also a farewell full of emotion at the end of the golden age of mining.

(Video screenshot)

The video was shot at a mine in a hydropower consumption park in Sichuan, and the same scene was also played out in many places in Sichuan that night.

With Mongolia, Xinjiang, Qinghai and other places issuing policies to clear crypto mining projects in the past two months, Sichuan, which is regarded as the last "hope" by miners, has also recently implemented policies to completely clear mining sites. So far, all the major crypto mining provinces in China have closed their doors to miners, and the Bitcoin computing power has been affected and has dropped sharply, nearly halving from the peak in mid-May this year.

However, miners don’t have much time to feel sad. Some old miners who have already become financially independent have since stopped working and sold their machines at a low price. But for more miners who have purchased new machines and are still in the payback period, they must find another way out.

After development in recent years, the financial instruments of the mining industry have become very sophisticated. There are many miners who are burdened with leverage. The pressure of monthly loan repayments forces them to restart their operations as soon as possible. Going to sea is their last option.

"Several people around me with high leverage ratios are already lying in wait for liquidation. I should be able to hold on for another two months. I am also investigating suitable mines overseas and am currently leaning towards Texas, USA," the interviewed miners told Odaily Planet Daily.

However, going out to sea is not an easy choice. The journey is long and transporting heavy assets to a strange place has many obvious difficulties, and there are even more invisible traps. There are many miners who have failed and lost all their money when going out to sea.

During the ups and downs, Odaily Planet Daily interviewed several miners to hear about the things that happened before and after the shutdown, as well as various things related to mining overseas. Where are they going? How many difficulties are there ahead? Where is the most reliable place to stay?

1. All mines were completely cleared out, and the "golden age" came to an end

"In fact, we have been mentally prepared more than a month ago. But the ship is too big to turn around. Even if you know about it, what can you do? Just like this shutdown, we notified you one day in advance, and we have no power to change the outcome." Miner Lao A was quite helpless.

Mr. A's mine is located in a hydropower consumption park in Sichuan, with a total load of hundreds of thousands of kilowatts. Based on the investment cost of 5 million yuan for a 10,000-kilowatt load, the total investment reaches over 100 million yuan.

However, the mine was urgently stopped only 10 days after it was built and excavated.

On June 18, a document was circulated in multiple communities, which was issued by the Sichuan Provincial Development and Reform Commission and the Sichuan Provincial Energy Bureau. The document stated that the State Grid Sichuan Electric Power Company has currently investigated and reported to the state 26 suspected virtual currency "mining" projects. Led by the relevant municipal (state) governments, the State Grid Sichuan Electric Power Company and the Provincial Energy Investment Group will cooperate to complete the screening, cleaning and closure work before June 20. The news was later confirmed by mainstream media such as The Paper.

On the evening of June 19, dozens of registered mining farms, including Lao A Mine, were all shut down as the first batch of "demonstration enterprises", which led to the scene at the beginning of the article. That night, "Sichuan Bitcoin mining farms collectively outage" also topped the Weibo hot search list.

Before this, unlike coal-fired power generation in Inner Mongolia, Xinjiang and other places that were criticized for pollution, Sichuan, which mainly uses hydropower, was regarded by many miners as the "last hope" for domestic mining.

On May 21, the Financial Committee of the State Council proposed "cracking down on Bitcoin mining and trading" in a meeting. Since then, Xinjiang, Qinghai, and Inner Mongolia have issued relevant policies to rectify and clean up virtual currency mining.

Although the regulatory signals are clear, many miners are still taking a wait-and-see attitude and are not in a hurry to relocate. In the view of many miners, the main reason why Xinjiang and Inner Mongolia stopped mining is that coal causes serious environmental pollution. For the Yunnan, Guizhou and Sichuan regions that use hydropower energy, they are still optimistic. Especially with the arrival of the flood season, Sichuan and other places have a demand for hydropower consumption, and there may still be hope.

On June 2, the Sichuan Supervision Office of the National Energy Administration held a small-scale research seminar to analyze the impact of shutting down virtual currency "mining" on the amount of abandoned hydropower in Sichuan this year. Some miners attending the meeting said that mining can proceed normally, which also sends a positive signal to the outside world.

(Social media screenshot on June 2)

At that time, Mr. A had signed a cooperation agreement with the relevant Sichuan authorities and filed it. He also put his worries aside because he had a formal contract as a guarantee and there was a high probability that a sudden power outage would not occur.

However, just half a month later, the wind direction suddenly changed, and Yunnan and Sichuan successively announced the banning of encryption mining projects, which also dealt a heavy blow to Lao A.

“When the mines were rectified starting in Xinjiang and Inner Mongolia, many people had already noticed that the intensity was different this time. Because the Inner Mongolia document included the content of “preventing financial fraud,” the closure of mines has nothing to do with the type of electricity you use.” Old A made a summary afterwards.

According to previous media reports, Sichuan is the largest gathering place for Bitcoin miners in China and even in the world, with about 8 million loads being used for cryptocurrency mining. With this round of rectification, all large mining farms have been shut down.

However, Lao A revealed that currently in Sichuan, some isolated grid power (not entering the national grid system) mining farms with small loads (1,000 kW to 2,000 kW) are still in operation, but with the implementation of policies, the closure of these mines has also entered the countdown.

2. Selling machines at a low price is fine, but some miners can only go bankrupt

"The miners' group that was originally used for communication has now started selling transformers and mining machines." Lao A explained. As mining farms in Inner Mongolia, Xinjiang, Sichuan and other places have been closed one after another, some miners have begun to consider selling their equipment at a low price due to the tightening of policies.

A large number of second-hand machines have flooded into the market, causing the price of mining machines to plummet. It seems like two different worlds compared to the situation a few months ago when "it was hard to get a machine or a card."

A second-hand mining machine salesperson told Odaily Planet Daily that mining machines have now completely become a buyer's market, and sellers' quotations have basically become invalid. Take S19 as an example. It was once sold for more than 70,000 yuan, but now second-hand mining machines only cost more than 20,000 yuan. In order to ease the pressure on miners to ship, Bitmain also recently announced that it would temporarily stop selling spot machines.

However, selling mining machines at a low price and exiting the market is actually an option. Some highly leveraged miners have no choice at all. They can only find another way to continue mining, otherwise they will face liquidation and bankruptcy.

Due to the rise of various financial instruments in the past two years, the leverage ratio of the mining circle has begun to rise. A small number of miners choose to pledge coins to borrow money to buy machines, and pledge machines to buy new machines again. Some people are burdened with the pressure of repaying millions or even tens of millions of loans every month.

Previously, new coins could be mined every month and the price of coins kept rising, so repayment of the loan was not a problem. But now that the source has been cut off, miners cannot mine coins, which will lead to a break in cash flow. After the expiration, all machines and pledged tokens will be liquidated, and it may not even be enough to repay the loan, and the debt will need to be borne.

There are many such miners. Recently, a mine owner with a load of hundreds of thousands of kilowatts was besieged by creditors because he could not come up with tens of thousands of cash. A miner interviewed said that if mining is still not possible in the next two months, "many people in the mining circle will die."

"Several people around me with high leverage ratios have already been liquidated." The interviewed miner told Odaily Planet Daily that one of his friends has only used his mining machine for 10 days in the past three months and is still looking for electricity everywhere. "I should be able to hold on for another two months. I am also investigating suitable mines overseas, and I am currently leaning towards Texas, USA."

Currently, only a few provinces have introduced restrictive policies, and other provinces have not yet implemented them, which also gives miners some breathing space and allows them to circulate in various places (commonly known as "guerrilla warfare"). There are still many mines in operation in some areas, but due to limited energy, it is difficult to support large mines and can only meet the needs of some small miners.

Many domestic miners are still waiting and watching. First, they hope that the demand for electricity will be lower after the summer peak; second, they hope that the policy will be relaxed. This is also the truest thought of many miners who are currently "guerrilla warfare" in various places.

Due to the need of miners to fight guerrilla warfare, the demand for mobile mining boxes has surged recently. A mining box salesperson told Odaily Planet Daily that his business volume has increased fivefold in the past month, and some orders have been scheduled for delivery next month. (Note: The mobile mining box can be separated from the mine and moved at any time, and protect the mining machine from damage)

(The mining machine is being placed into the mobile mining box)

3. Where to go to sea: Central Asia, Eastern Europe, North America or Northern Europe?

With stricter supervision, small and medium-sized miners may be able to bear the losses and exit the market, but for large miners with tens of thousands of mining machines, going overseas to find suitable sites to build new mines is a must.

Nic Carter, founding partner of Castle Island Investments, previously estimated that 50% to 60% of Bitcoin computing power may eventually leave China.

"In the past month, friends in the industry, including those from the leading mining pools, have been asking me how to go overseas and how to run the process. We have also given several friends tens of thousands of kilowatts of load to help them overcome difficulties in the short term." The miner's boss told Odaily Planet Daily that the total load of all mines in Kazakhstan is currently about 1.3 million kilowatts, but it is not running at full capacity.

As early as 2018, Lao Dong started to build mining farms overseas. He currently owns a large mining farm with a load of more than 100,000 kilowatts in Kazakhstan. When the domestic mining machines were cleared out, Lao Dong took the opportunity to transfer his mining machines overseas one after another. "In the past two years, I always had to go back and forth in China, and the overseas electricity price was cheap, so I thought of leaving myself a way out. I didn't expect that it would be used now."

For offshore miners, Central Asia, Eastern Europe, North America, and Northern Europe have also become several important options:

• BitMining, a US-listed company, announced that it would invest in mining farms in the United States and Kazakhstan. The latest news is that its first batch of virtual currency mining machines (320 units) arrived in Kazakhstan and are expected to be deployed and put into operation on June 27. Other self-owned mining machines are also being shipped overseas in batches.

• Jiang Zhuoer, CEO of Litecoin Mining Pool, said: "The joint mining business will no longer be open to mainland China, and mining will mainly be deployed in North America in the future."

• “We are working to diversify our global mining hashrate, which is why we are moving to the United States and Canada,” said De La Torre, vice president of mining pool Poolin.

From a policy perspective, many overseas regions have a friendly attitude towards cryptocurrencies and have introduced relevant plans as a safeguard. For example, the AIFC Investment Department of Kazakhstan recently called out through Chinese media, welcoming Chinese miners to enter the country and establishing compliant hosting mines in three to four weeks. In addition, in June this year, Texas Governor Greg Abbott (R) signed a bill to create a legal framework for cryptocurrencies and blockchains, and the Texas Department of Banking notified the approval of state-chartered banks to host cryptocurrencies.

After the Sichuan mine was closed, Mr. A, who had tens of thousands of mining machines, also looked for a new battlefield in China, but in the end he found nothing and had to go overseas. Texas was also one of the new locations that Mr. A focused on. "We also have some electricity resources there, and the electricity price basically fluctuates at 0.2 cents. More importantly, the United States is more contractual, and will not suddenly cut off your power."

In addition to Lao A, Texas is also an ideal destination for many other miners. Miner Lao Chen said that when going out to sea, he would give priority to places with sound laws such as the United States and Canada, where personal and property protection is better, while there are great uncertainties in places such as Central Asia and the Middle East, which are more prone to accidents.

“If you want to be more formal, choose North America. If you want to have a better cost-effectiveness, choose Kazakhstan and the Middle East.” An industry insider summarized the selection criteria for overseas mines.

As the trend of mining farms going overseas has become popular, container resources are in short supply. Chen Lei, CEO of Bixin Mining, recently posted a message on WeChat Moments asking for the purchase of 200 containers.

4. Difficulties of going to sea: constant difficulties and numerous traps

Whether it is policies or electricity prices, overseas countries seem to be very friendly to miners. However, those who have not really experienced shipping assets across the ocean cannot imagine how many pitfalls are waiting for you after going overseas.

The first is the high construction cost and long construction period.

According to Mr. A’s investigation, the current investment cost of 10,000 kilowatts of load in Texas is about 35 million yuan, which is 7 times that of China. Even in Kazakhstan, which is famous for its cost-effectiveness, the construction cost is much higher than that of China.

One important reason is that although Kazakhstan has a large number of electrical equipment from the former Soviet Union, they have long been outdated and are not suitable for building mines. Take Lao Dong’s new mine as an example. With a total load of 30,000 kilowatts, it can only run 10,000 kilowatts.

Therefore, miners need to choose to purchase electrical equipment from China, clear customs and ship it abroad. Mining machines and electrical equipment are shipped from China by rail to Almaty (the largest city in Kazakhstan), and then transferred to mines in various places, which takes about 20 days.

In addition, the boss also said that foreign teams generally have slow construction and no professional mining machine maintenance team, so they need to recruit workers from China, apply for visas, and get vaccinated. After the whole process, it takes about two months to build a new mine. "The annual salary we pay to mining machine maintenance personnel may reach one million. And the prices of materials and commodities are rising now, which further increases the construction cost."

In addition, there are many hidden pitfalls in actual operations that are difficult to guard against.

When Lao Dong first tried out mining in 2018, he chose to build a site in a city within the Russian Arctic Circle. However, in actual operation, due to the low temperature, electrical equipment and mining machines often broke down and mining was impossible. When he finally withdrew, his partners found various reasons to seize the machines, and after negotiations, he only got back half of the mining machines. Later, he moved to Kazakhstan, and Lao Dong's electrical equipment was also "rented free of charge" by his partners.

When I asked the boss why he didn't choose to take legal action to protect his own rights, he said helplessly: "They have connections in the local area. If you go to a lawyer, he is also a local lawyer. If you go to court, it may take a year or two. To put it bluntly, you can't outlast these people. However, in Kazakhstan, if you follow the law and the entire process, there is basically no problem in protecting the mining machine."

What happened to Lao Dong is also what Lao Chen and most other domestic miners worry about. "There are so many pitfalls overseas. If you don't have enough resources and connections, it's better not to go overseas. It's hard to develop."

Due to the difficulty of building overseas mines, many small and medium-sized miners choose to entrust their mining machines to mature overseas mines. However, the boss pointed out that this move is very risky and may result in the loss of ownership of the mining machine. "When the machine is cleared by customs, it belongs to whoever does the customs clearance. If you encounter an unreliable one, it is possible that the machine will be swallowed up directly."

In addition, many overseas mines claim to have a large amount of idle resources and are seeking domestic investment. The old boss said that due to the epidemic, Kazakhstan does not have sufficient idle resources. "Many mines are very arrogant, saying that they have 200,000 or 300,000 loads, which is nonsense. Now because of the epidemic, people can't go in, and equipment can't go in. It would be reasonable to start building a mine on a large scale at the beginning of next year. But no one knows what the new situation will be by then."

V. Conclusion

For the entire crypto market, the mining circle has always been a mysterious "rear base".

Miners mainly communicate online and in communities, and every offline summit is a large-scale online meeting. Once people get to know each other, the connection between them will quickly become close, and they will stick together for warmth. After this centralized shutdown, some miners in overseas mines also helped their domestic friends to run the overseas process, and even directly shared their own electricity resources.

Despite the heavy losses this time, for many veteran miners, they have already enjoyed the dividends given by the market for several years and still firmly believe in Bitcoin and blockchain technology.

It is this firm belief that enables the miners to overcome numerous difficulties and go out to sea.

We are separated today and I don’t know when we will meet again.