Economic Daily: Bitcoin market is volatile, mining machines are hard to come by, and there are undercurrents behind the boom in the "currency circle"

Source: Economic Daily

Reporter: Li Hualin

In 2021, Bitcoin has been rising sharply, breaking through the $30,000, $40,000, and $50,000 mark. The mining machine market has also set off a climax, and the prices of new and old mining machines have doubled. However, the seemingly hot market is actually undercurrent, and the surge and plunge are becoming more frequent. As of the morning of March 1, the price of one Bitcoin was around $45,000, which has fallen by more than $10,000 in a week compared to the highest point of $58,000 on February 22.

Mining machine prices soar

As the price of Bitcoin continues to hit new highs, the mining machine market has become increasingly popular, and it has become difficult to get a machine.

Bitcoin is "mined". Miners invest computing power through mining machines to obtain the right to package Bitcoin blocks. After completing the packaging, they receive Bitcoin generated by the system as a reward. This process is commonly known as "mining". The hardware equipment for "mining" is called a mining machine, which is essentially a computing device.

The price of mining machines has always been closely related to the value of the currency. In the past six months, the rising price of Bitcoin has driven a surge in demand for mining machines. Investors have purchased more high-computing mining machines, hoping to gain more stable returns by increasing computing power while the currency price is high, which has driven up the price of mining machines.

The reporter found that the prices of both new and second-hand mining machines on the market have doubled. "In October last year, the price of an Antminer S19 was about 14,000 yuan (the price of mining machines is in RMB, the same below), and now the spot price has risen to about 55,000 yuan," said Liu Fei, CEO of Bixin Mining.

The reporter found that many official websites of mining machine manufacturers currently show that the new machines are sold out. Bitmain’s official website shows that the Antminer S1995T, S19Pro110T and other machines on sale have all been sold out, and the delivery time will have to wait until August.

In addition to the new mining machines being sold out, second-hand mining machines are also snapped up as soon as they appear. A mining farm owner said that since the second half of last year, customers have been placing orders, but the mining machine manufacturers have insufficient production, and new mining machines are basically extinct on the market. "You can only try your luck in the second-hand mining machine market, and the price changes every day."

Driven by the hot market, the income from mining has also risen. "According to the current market, investing in mining machines can pay back in 10 months." Liu Fei said that he bought 50 Antminer S19s last year and hosted them in a Sichuan mine. He started mining in October. "At that time, the price of Bitcoin was about $13,000, and the profit of a mining machine was about 40 yuan a day. As Bitcoin rose to $50,000, the profit of a mining machine rose to about 190 yuan a day."

With high returns and quick returns, the skyrocketing price of Bitcoin has made people in the currency circle excited. More and more people are trying every means to search for mining machines, hoping to catch up with this "bull market".

Cloud computing power becomes the new favorite

In fact, buying a mining machine is like buying coins, which is a "gambling" activity, and the timing of entry is very important. Liu Fei told reporters that the cost of "mining" is not cheap, including the cost of purchasing mining machines, the wages of miners, electricity costs of mining sites, and hosting fees. When the price of coins is high, the cost of "mining" can be ignored, but once the price of coins drops sharply, the income generated by "mining" cannot cover the cost, and starting the machine means losing money.

Many people in the cryptocurrency circle still remember the situation of "mining machines sold by the pound" in 2018. That year, Bitcoin fell from a peak of nearly $20,000 and once almost fell below $3,000. The mining machine market also entered winter overnight. Liu Fei still remembers that the Antminer S9, which originally sold for 20,000 to 30,000 yuan each, once fell to around 600 yuan. Many Bitcoin mines were unable to make ends meet and had to choose to resell and liquidate.

Judging from the market fluctuations of Bitcoin, sharp rises and falls are not uncommon. "Mining" is costly and has many variables, so some new investors have chosen the more convenient "hosting service" - buying cloud computing power.

Cloud computing power is to split the total computing power of mining machines into independent units. Mining farms provide mining machine computing power leasing services. Investors do not need to buy physical mining machines, but only need to purchase computing power contracts to conduct "cloud mining" and obtain corresponding virtual currencies. Reporters found on multiple cloud computing power platforms that the yields claimed by each platform are indeed not low, with annualized yields ranging from 30% to 120%. Users can choose different gift packages to purchase, which are locked for 180 days or 365 days after purchase, and the platform will extract a service fee of 10% to 20% from it.

However, buying cloud computing power also faces huge risks. Investors cannot see the physical mining machines and cannot be sure whether the platform really has the mining machines to "mine". Even if there are mining machines to support it, in the absence of third-party guarantees and supervision, risks such as "cannot log in", "cannot withdraw cash", and "boss running away" often occur. Since last year alone, cloud computing platforms such as Gigabit Mining Pool and Miningzoo have run away, causing some investors to suffer heavy losses.

Risks cannot be ignored

Looking back at the recent Bitcoin price trends, under the "madness", the market is filled with a strong sense of speculation, forming a huge bubble.

Some experts say that Bitcoin has neither enough practical scenarios nor actual responsible entities. Market expectations largely affect the rise and fall of prices. In addition, due to the lack of an adjustment mechanism and decentralization, there is almost no ceiling when Bitcoin rises, and there is no so-called bottoming effect when it falls.

"Since the outbreak, the global economy has been sluggish, and major central banks have implemented loose monetary policies, pushing up market inflation expectations, increasing global risk aversion, and influx of funds into Bitcoin." William Li, chief researcher at OKEx Research Institute, believes that in the medium and long term, after the epidemic is gradually alleviated and the economy gradually recovers, global monetary policy will also shift from loose to moderately tight. At that time, institutional investors are likely to sell Bitcoin, and the Bitcoin market will fall into depression.

More importantly, the legality of Bitcoin is not widely recognized at present, and it is in a gray area of ​​law and regulation in most countries. Zhao Wei, chief economist of Kaiyuan Securities, said that whether Bitcoin can obtain legal status and whether it will be replaced by digital currencies backed by national sovereignty will directly affect its long-term price performance.

Lack of legality and being in the gray area, the "currency circle" has become a hotbed for various illegal and criminal activities. The reporter noticed that with the arrival of the "bull market", various investment groups, copycat coins or pyramid schemes have become active again, and some illegal activities such as disguised money laundering and illegal fundraising have risen, which may prompt regulatory authorities to further strengthen supervision of the "currency circle" and crack down on illegal activities.

In this regard, Li William believes that investors should correctly understand the investment positioning of Bitcoin. "Bitcoin is a high-risk asset. Don't try to pursue the so-called wealth freedom by investing in Bitcoin, and be prepared for losses when investing in Bitcoin. For investors who use debt and high leverage to speculate in coins, they may need to be prepared for bankruptcy or even debt."