Xinhua News Agency | Mining consumes huge amounts of energy, prices soar and plummet - Investigation into the chaos of virtual currencies

Source: Xinhua News Agency

Reporters Wu Yu, Chen Jian, Mao Zhenhua

A 30% drop overnight, a month's price was almost "halved", and those who were liquidated were left with nothing... Recently, the prices of virtual currencies such as Bitcoin have skyrocketed and plummeted, causing onlookers to exclaim and investors to lament. From mining to trading to financing, the "currency circle" is in chaos, and regulatory rectification has been launched. Investors should stay away from virtual currency trading speculation activities.

Crazy mining under the guise of "data center"

On the desolate river bank, in a simple factory building built with steel pipes, color-coated steel plates and other materials, nearly a thousand computer mainframes are running at high speed on rows of large iron racks, emitting waves of heat and the hum of fans.

If you are not a local, few people know that this is a Bitcoin "mine". The car that delivers meals to the "miners" departs from Guza Town, Kangding City, Sichuan Province every day, passing a dirt road that is not even on the map, and it takes more than half an hour to arrive.

There are many "mines" like this hidden in the deep mountains and valleys in western Sichuan. The "miners" are eyeing the cheap hydropower resources here. Many of them are engaged in Bitcoin mining in the name of "hydropower consumption" and under the guise of "data centers."

"We'll go wherever the electricity price is cheaper." A "mine owner" told reporters that they usually mine in western Sichuan during the flood season in spring and summer, and then in winter they "move" to Inner Mongolia, Xinjiang and other places to continue mining using thermal power.

Although Bitcoin is a virtual commodity, it takes a lot of time and effort to obtain a Bitcoin. It requires continuous calculations by computers according to algorithms, commonly known as "mining". There are "mining machines" specifically used to mine Bitcoin on the market. Some people buy "mining machines" on a large scale to form "mining farms" and "mine" day and night...

"As bitcoin mining becomes less and less, operating a 'mine' will face higher capital investment and longer payback period." A "mine owner" told reporters that in the past, dozens or hundreds of "mining machines" were purchased, but now thousands are purchased. Some "mines" consume millions of degrees of electricity a day, and many are directly connected to hydropower stations for electricity.

A "mine owner" once told reporters proudly that the annual electricity consumption of his "mine" somewhere in the southwest was equivalent to the total annual electricity consumption of three cities.

Industry insiders said that it is not just Bitcoin. With the continuous emergence of virtual currencies such as Ethereum and Dogecoin, the power consumption caused by the entire virtual currency mining is exploding, and most of these "mines" are concentrated in my country, which will bring huge pressure on energy supply.

Speculative trading in the cryptocurrency world is fraught with risks

Virtual currency is called "currency" but it is not real currency. It cannot be circulated and used as currency in the market, and it should not be used for speculation. However, driven by profit, some people still take risks and turn a blind eye to the risks of fake assets, business failure and investment speculation in "currency circle" transactions.

——“Market makers” set up a scheme to manipulate prices. According to industry insiders, most virtual currencies, including Bitcoin, have a huge number of holders, and it is not difficult for them to manipulate market prices.

“Take a certain currency as an example, the top 10 holding addresses own nearly 40% of the circulating tokens. As long as the massive holders have the same goal, it is very easy to manipulate the price.” The person in charge of an overseas virtual currency trading platform revealed to reporters that on May 19, the currency’s maximum decline exceeded 50%, less than one-third of its previous highest price, and many investors suffered heavy losses.

——Resurrecting from the dead, “air coins” continue to exist despite repeated bans. Under the heavy policy, the domestic initial coin offering (ICO) has been almost eliminated, but many platforms have transferred transactions to overseas platforms, but the main battlefield for issuance and promotion is still in China, and they have tried every means to bypass the risk control of domestic financial institutions to conduct recharge transactions.

"Dogecoin has skyrocketed recently. I think people have a special liking for coins named after animals, so I invested in Shiba Inu Coin. It rose more than 20 times in just a few days, but the price has plummeted recently and almost all the profits have been lost," said investor Liu Peng.

Instigated by this blind investment mentality, more "air coins" with bizarre concepts began to emerge, such as cat coins, pig coins, and eel coins... These "air coins" that have no physical support and no application value will bring huge losses to investors once the tide recedes.

——Leveraged trading amplifies investment risks. In the violent market fluctuations of virtual currencies, many investors use leverage to try to "turn a bicycle into a motorcycle", but often end up losing all their money.

In January this year, Mr. Zhou entered the cryptocurrency circle with 500,000 yuan in capital. Within a few months, his account capital reached 3 million yuan. However, Bitcoin has plummeted recently, and at the most severe time, he faced a loss of tens of thousands of yuan every few minutes. Unwilling to see his funds shrink, Mr. Zhou made a desperate move and increased leverage to buy at the bottom, but unexpectedly, Bitcoin plummeted again, causing a liquidation, and all 3 million yuan soon "evaporated".

The transaction data provided by the third-party platform showed that as of 15:00 on the 25th, more than 140,000 virtual currency leveraged transactions had their positions liquidated in the past 24 hours, with the amount reaching 4.641 billion yuan. On the evening of the 19th, the amount of liquidation exceeded 40 billion yuan.

Stay away from cryptocurrency trading hype

Relevant departments in my country have long been aware of the risks brought about by virtual currency trading speculation, issued timely warnings, and introduced measures on many occasions to rectify the risks.

In 2013, the People's Bank of China and five other departments jointly issued the "Notice on Preventing Bitcoin Risks", requiring all financial institutions and payment institutions not to conduct Bitcoin-related businesses. In 2017, the central bank and seven other departments stopped all types of token issuance and financing, and carried out special rectification. Subsequently, my country's virtual currency trading platforms and ICO trading platforms basically achieved risk-free exits, and the global share of Bitcoin traded in RMB once dropped to less than 1%.

Despite this, some people are still waiting and watching, maintaining their "mine" operations; some virtual currency trading platforms are still able to bypass the risk control of domestic financial institutions and conduct recharge, withdrawal, purchase and other operations.

Recently, virtual currency trading speculation has rebounded. The China Internet Finance Association and other relevant associations jointly issued an announcement to warn people to guard against the risks of virtual currency trading speculation. On May 21, the 51st meeting of the Financial Stability and Development Committee of the State Council clearly proposed to crack down on Bitcoin mining and trading.

"The next step is to take targeted measures to conduct centralized rectification activities on virtual currency mining and trading." Dong Ximiao, chief researcher of CMB Financial, suggested that, on the one hand, local governments should stop attracting investment from companies suspected of mining and cut off the increase. A comprehensive approach should be taken to promote the orderly exit of existing mining companies, including electricity prices, land, taxation, and environmental protection. On the other hand, institutions and platforms that illegally participate in virtual currency trading, speculation, or provide support services should be dealt with in a timely manner in conjunction with judicial departments to increase the cost of violations and increase the deterrent effect of rectification.

Experts said that virtual currency is by no means a "profitable" investment, and virtual currency trading contracts are not protected by law. Faced with the repeated reminders and admonitions from relevant departments, investors should enhance their risk awareness, stay away from virtual currency trading speculation, and protect their "purses".