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Shu Shi | Text Author: Hong Kong alternative investment expert, virtual asset management and policy research expert, senior member of the Hong Kong Institute of International Finance. New book "Redefining Finance: Cryptocurrency and Digital Assets". On the evening of June 20, Father's Day, Hong Kong-listed Lotto Interactive Entertainment (8198.HK) issued an announcement on the Hong Kong Stock Exchange, stating that its wholly-owned subsidiary received a notice from the local power company on the 19th, stopping its power supply from 9 pm on the 19th, and requiring the subsidiary to adjust its operating plan in accordance with the "Letter on Assisting in the Cleanup and Shutdown of Virtual Currency "Mining" Projects" issued by the Economic and Information Technology Bureau.
This information shocked the cryptocurrency community.
First, from the perspective of the listed company, the subsidiary is the largest data center of Lotto Interactive Entertainment in China, which mainly provides customers with a full range of services such as venue, hardware support, power supply, supporting monitoring and management. After the power outage, the data center will stop operating, which will have a serious adverse impact on Lotto Interactive Entertainment's revenue.
Lotto Interactive Entertainment said in the announcement that the company's board of directors will actively formulate alternative strategies and explore other business development directions. It will also inform its shareholders and potential investors of any significant progress in the group's business at an appropriate time.
According to the announcement, Lotto Interactive Entertainment received an official notice on June 19 and the power was cut off in the evening of the same day. If there had been no verbal prompts or warnings before that, this would definitely be a "sudden incident" that would have caught the company off guard.
Secondly, considering the entire industry level, as of the early morning of June 20, almost all Bitcoin mines in Sichuan Province, where the world's largest Bitcoin mine is located, have been collectively cut off from power. Those "mines" that are unable to relocate in time may suffer heavy losses.
Sichuan Province is an ideal place for Bitcoin mining due to its rich hydropower resources, numerous hydropower stations and low power generation costs. As of June 19, it was the world's largest gathering place for Bitcoin miners.
According to media statistics, about 8 million kilowatts of load are being used for cryptocurrency mining. Especially near hydroelectric power facilities, huge circular fans for heat dissipation can be seen, and they all have large transformers. Mining plants are closely adjacent to high-voltage power towers, and the demand for electricity is quite huge.
It is reported that during its heyday, a single mining farm in Sichuan had more than 210,000 mining machines.
Obviously, the current situation of this kind of mines in mainland China will change rapidly, and behind this is the will of China's regulatory authorities.
According to the announcement of Lotto Interactive Entertainment, local governments in mainland China are actively cooperating with the instructions of the Financial Stability and Development Committee of the State Council (hereinafter referred to as the Financial Committee) issued on May 21 to "crack down on Bitcoin mining and trading activities."
In fact, before Sichuan took action this time, Inner Mongolia, Xinjiang and Qinghai had already issued rectification plans and began to implement tightening measures.
However, judging from the existing information, Sichuan's actions were the most ruthless and the fastest. The author believes that the mainland's cryptocurrency mining industry may usher in a historic end.
According to a report by China Business News on June 18, Sichuan Province has issued a "Notice by the Sichuan Provincial Development and Reform Commission and the Sichuan Provincial Energy Bureau on the Cleanup and Shutdown of Virtual Currency "Mining" Projects", requiring relevant power companies in Sichuan to complete the identification, cleanup and shutdown of virtual currency "mining" businesses before June 20.
The notice also requires that the central power generation companies in Sichuan and provincial state-owned power generation companies should conduct self-examination and self-correction and immediately stop supplying power to virtual currency "mining" projects. At the same time, the municipal (state) governments should immediately launch a dragnet investigation and immediately shut down any virtual currency "mining" projects found in the investigation.
Previously, the State Grid Sichuan Electric Power Company had investigated 26 suspected virtual currency "mining" projects and reported them to the state. Therefore, it can be said that there were early signs of what happened to Lotto Interactive Entertainment.
Why are overseas prices less affected?
The closure of Bitcoin China's "mining areas" may cause short-term fluctuations in Bitcoin prices, but in the long run, the impact on Bitcoin prices will not be significant because the computing power of these mining farms will gradually be replaced by overseas mining farms.
CoinMarketCap data showed that the price of Bitcoin fluctuated greatly on June 20, from $35,896.72 at 1:19 p.m. to $33,432.08 at 8:24 p.m., a drop of 7% in 7 hours, showing obvious selling pressure.
But then, the price of Bitcoin rebounded in a V-shape and completely recovered its lost ground in the next 7 hours.
Since Bitcoin is traded globally 24 hours a day, the changes in the above transaction prices and times indicate that currently more Bitcoin holders in Greater China are selling Bitcoin. Therefore, during the daytime Beijing time, the price of Bitcoin is more severely suppressed. However, at night, as the Western Hemisphere enters daytime, Western investors enter the market, pushing up the price of Bitcoin again.
Why do Western investors have different views on Bitcoin than Chinese investors? This may be related to regulatory differences between countries.
In recent years, in the Western market, as investors' consensus on cryptocurrencies has further strengthened and more and more institutional investors have joined in, Bitcoin is being included as an acceptable investment by more traditional financial institutions (it should be noted here that it is just like calligraphy or paintings or commodities, it is an alternative "investment" concept rather than a "currency" concept).
Regulators in developed economies generally adopt a tacit approval or effective regulation approach to Bitcoin transactions, including Hong Kong, China, which is also considering licensing all cryptocurrency businesses - these moves mean that cryptocurrencies will be strictly regulated, but will also become legal transactions.
In the above context, although Bitcoin has disadvantages such as slow transaction speed, high energy consumption, and low liquidity due to a large number of chips being controlled by a few institutions, as an alternative investment product, it provides investors who have the financial risk tolerance with another investable asset class.
The establishment of each new asset class will attract corresponding liquidity, which is a characteristic of all asset management industries. As a special alternative asset, the blockchain technology underlying Bitcoin is gaining more and more attention from various industries. From the perspective of overseas development, the development of blockchain technology will continue to derive new cryptocurrencies related to Bitcoin, which in turn promotes the industry's demand for Bitcoin from another perspective.
Nevertheless, I would like to remind readers:
As an emerging alternative asset, Bitcoin’s price discovery mechanism is not yet fully mature. Regulatory changes, geopolitical influences, monetary policies of major developed economies, and the evolution of financial technology are all likely to significantly affect Bitcoin’s price, causing it to experience huge fluctuations, which are not something that ordinary investors can afford.
For investors in mainland China, the more realistic problem is that, so far, it does not have a legal status recognized by the government in mainland China and cannot be freely traded! The power outage of the Sichuan subsidiary of Lotto Interactive Entertainment may be just the tip of the regulatory iceberg. It is not ruled out that more intensive or even stricter regulatory measures will be introduced in the future. |
