New infrastructure enlightenment: If you don’t understand BTC mining, you are not a good investor

The new infrastructure that has been hotly discussed recently has made related industries such as chips, IDC, 5G, and investment institutions "excited", but these industries are not born on the first day. Looking back at the development over the past decade, a large amount of capital, talents, and resources have been invested in them. What is the actual profitability? Even with the strong support of the country, how many can really get the funds and resources? The market is fair. Companies that cannot make profits on their own are not good companies, and companies that rely on policy support are also difficult to develop greatly.

From the perspective of investors, if I were to categorize investors, I think first-class investors are those who discover and create new value, second-class investors form groups to create new trends, third-class investors team up to follow trends, and fourth-class investors blindly cast a wide net to protect their principal.

IDC under the new infrastructure is a hot spot, not a low point

The proposal of new infrastructure has led many industry practitioners and investment institutions to believe that this is a huge opportunity for the IDC industry and that they need to make full efforts to deploy it. In my opinion, this idea is half right and half wrong. It is a good thing for the IDC industry, because with the development of technology, computing and storage demands are growing exponentially, which will inevitably lead to the rapid growth of related IDCs; but for investors who want to deploy, whether you are a professional investment institution or a related industry role, you must have a deep understanding and careful consideration before making a decision.

From public data, we know that the total load of IDC in China is about 23 million kilowatts, which is driven by the development of the communications industry, the Internet and mobile Internet in the past 20 years. With the development of 5G, the Internet of Things and AI, IDC will usher in a new wave of growth, but authoritative predictions show that the actual annual load growth rate is unlikely to exceed 20%. This is because IDC requires huge initial investment, has a high threshold, consumes a lot of electricity, and faces strict restrictions on PUE in various places.

From an investment perspective, IDC has high barriers to entry, low gross margins, and low returns. It is difficult to bring high returns, and it will face various scale bottlenecks. However, the 80/20 rule is everywhere in the market. After all, only a few people can make rational judgments, and even fewer can find value depressions.

Bitcoin Mining - The Real Value Valley

We admit that Bitcoin has only been around for 11 years, and it is still a relatively small industry that most people don’t even know about. According to incomplete statistics, the number of people who have held Bitcoin so far does not exceed 60 million. However, there are more than 7 billion people in the world. Looking at the market, how many industries still have such a “potential demographic dividend”?

As an important part of the Bitcoin ecosystem, Bitcoin mining is responsible for maintaining the security and stability of the system. At present, the total global mining load is about 8 million kilowatts (China accounts for about 70%). It took only ten years to grow to 40% of the traditional IDC volume, and it still maintains a high-speed growth trend that far exceeds the growth rate of traditional IDC. We have analyzed in previous articles that Bitcoin mining is essentially part of the computing industry and has many similarities with traditional IDCs in the computing industry. Both are industries with chip costs and energy costs as their core costs.

In the previous article, we made an analogy. Bitcoin is currently more like a global energy, technology and finance index. It is highly correlated with the Dow Jones Index in the long term. This correlation comes from the fact that investors in Bitcoin and Dow Jones stocks may be the same group of people or related groups: if we look at the components of the Dow Jones Index, they are basically concentrated in the three pillar industries of energy, technology and finance. In terms of energy, Bitcoin mining consumes a lot of electricity (thermal power, hydropower, natural gas power, etc.). In terms of technology, Bitcoin itself was initiated by crypto geeks and has received a lot of attention from the computer and chip industries. In terms of finance, Bitcoin itself, as an alternative clearing system, has many irreplaceable financial values.

As the infrastructure of the Bitcoin industry, Bitcoin mining is a valuable asset in terms of compliance and risk resistance. However, many investors ignore it due to various misunderstandings and prejudices. As for the details, I believe that excellent investors will conduct in-depth research and make their own judgments.

On the other hand, the real trend does not need policy support, the free hand of the market will make the right choice. In the absence of any policy support:

1. The chip of Bitcoin mining machine has taken the lead in completing the evolution of CPU-GPU-FPGA-AISC and adopts the most advanced 7nm process;

2. Bitmain, a mining machine manufacturer, has revenue of over 10 billion and net profit of over 5 billion in four years since its establishment, and has become TSMC's second largest customer in China;

3. The scale of global Bitcoin mining farms is growing rapidly, a large amount of idle energy is being reused, and local governments in China are taking the initiative to establish hydropower consumption demonstration areas and cloud computing industrial parks;

4. The price of Bitcoin once exceeded 20,000 US dollars per coin. Although it has experienced several sharp fluctuations, the user base has increased sharply;

5. In order to provide services for Bitcoin transactions, tens of thousands of exchanges have been established around the world. The United States has the compliance support of Nasdaq and top institutions. Its liquidity and transaction volume are currently second only to the foreign exchange market, and its potential is huge;

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