Yunnan and Sichuan's mining policies are changing again, and this year's flood season mining industry is destined to be full of twists and turns

Mining itself is not a sin. Miners pay costs (electricity, machines, etc.) in exchange for goods (bitcoins) based on consensus and market rules. Mining is a completely market-oriented behavior. However, the mining industry has been marginalized and grayed out, and a big reason for this is Bitcoin. Because the concept of Bitcoin is not recognized by the mainstream society, mining is still a semi-underground industry besides a niche industry.

There is an interesting phenomenon: the production and circulation of mining machines are legal and compliant in most places around the world, and some mining machine manufacturers have even been successfully listed. However, mining has become a marginalized industry just one link away. No matter how we defend it, the most intuitive thing is that any disturbance in the regulatory level will affect the mining industry.

1. Policy swings, miners say every flood season is "exciting"

In 2019, the National Development and Reform Commission included Bitcoin mining in the catalogue of backward and eliminated industries in its draft for soliciting opinions. Although the mining industry was removed from the catalogue in the official document, it still caused quite a stir in the industry.

In June 2019, the Sichuan government launched a rectification of mines along the Dadu River. It coincided with the flood season, and the industry was also under great pressure.

In May 2020, Bitcoin mining was included as a supporting industry in the flood season electricity consumption plan in many prefecture-level cities such as Liangzhou in Sichuan Province, and plans were made to build supporting special industrial parks.

In May 2020, the Sichuan Provincial Financial Office issued a document requiring governments at all levels in the province to "actively guide enterprises within their jurisdiction to exit mining activities in an orderly manner."

In June 2020, Dehong Prefecture in Yunnan Province launched a heavy-handed crackdown on mines within its jurisdiction and set a deadline for the demolition of 64 mining projects. This was the most forceful mine rectification action in history.

The policy is wavering, the attitude is ambiguous, there is no prohibition, no encouragement, and occasionally there is a crackdown, which makes the miners say "the heartbeat is accelerating". The annual flood season is the time for miners to show their skills, and it is also the time when various mine "remediation" actions are most frequent. 2020 is the most special year. The policy swings in the treatment of the mining industry are more obvious. On the one hand, the pressure of economic development has increased and the local governments urgently need to "focus on economic construction". On the other hand, there is no rule for the distribution of the mining industry. From environmental impact assessment, infrastructure, fire protection, electricity, financial office and other links, they hope to gain the dominant position in it. Therefore, the root cause of various abnormalities, repetitions, and even confrontations in the mining industry this year comes from this.

Well-known mining blogger Wu Shuo Blockchain has unique insights into the wavering and even repeated policies of various water-rich provinces in the southwest this year. Wu Shuo believes that this round of rectification in Dehong Prefecture, Yunnan is driven by the power system. Because of the impact of the epidemic this year, the State Grid’s profits have been negative, so it plans to transfer all the electricity used in the mines to the power grid to increase revenue.

Data shows that the electricity consumed by mining each year accounts for 0.33% of the world's total power generation, and more than half of the world's mining machines are deployed in China.

As a person who has experienced five flood seasons, it is not surprising that something always happens during the flood season every year. However, this year's flood season seems to be more like a turbulent time for the mining industry. In Lao Wan's view, in addition to policy uncertainty, the factor that dominates mining during the flood season this year - the continued low price of coins has put the mining industry into a certain crisis.

2. Miners will withdraw after the halving, and the mining farms may be unsustainable before the policy is implemented

Last week, a mining event themed on mining in the flood season lasted for a week in Chengdu. The organizers spent a lot of money, the media reported it grandly, and people of all kinds flocked to the mining capital of the southwest. Conferences, salons, cocktail parties, nightclubs, it is said that the entertainment venues throughout Chengdu knew all the relevant meetings to be held every day that week. It seems that the living habits of people in the circle and young models have not changed.

Although the media did their best to exaggerate this week-long mining conference carnival, Binance and Huobi held one cocktail party and conference after another with their mining pool projects in order to attract more miners. Research institutions offered positive data that "with a coin price of 8,000, mining still has an annualized return of 30%", which made outsiders who were already eager to try it more confident in entering the mining market. The 0.1x flood and electricity price has approached the bottom line of the mining field cost. Various mortgage institutions have specially customized a series of plans for miners, vowing to let miners feel at ease to mine even if the coin price returns to 3,000.

The Chengdu Mining Conference, which has been lively for a week, cannot cover up an embarrassing reality. This year, the attendees are all people outside the industry, including media, project parties, mines, exchanges, mining machinery factories, mining service agencies, etc., but the miners, the audience of the conference, are not interested and rarely come to support. It is not easy to set up a show, but the attendees are all "water army", and the real audience does not buy it.

Take a miner group that Xiao Jianjian belongs to as an example. A miner in the group said frankly: The mining industry held a conference, but the real miners did not go to join in the fun. The people below all echoed "I didn't go", "I didn't see many miners on site", "I didn't go either". As a result, this conference named after the mining industry was finally jokingly called the "Mining Coin Circle Conference".

When Xiao Jianjian was in school, ballroom dancing was the most popular elective course. It was said that there were female dance partners assigned to this course. So the boys would set alarms in the middle of the night to grab the course. In the end, the whole course was occupied by boys. Boys hugged other boys and danced ballroom dancing for a whole semester, which was similar to the Chengdu Mining Conference.

So where did the miners go? The answer is that this year's miners did not go anywhere. We-media deepflow reported that this year's flood season has just begun: "The thermal power mines have been shut down, and 300 loads in the southwest are idling during the flood season." The halving of Bitcoin has made miners unprofitable, and the electricity price during the flood season is no longer as attractive as before. The 0.1X electricity price is icing on the cake, and the coin price must double to be a timely help.

Since the third Bitcoin mining reward halving in May, miners have gradually chosen to quit. The mining difficulty, which reflects the competition among miners on the entire network, has been lowered twice in a row, the first by 6%, and yesterday by 10%. According to real-time data, the next mining difficulty adjustment will also be lowered by 7.33% to 12.73T. This is an intuitive data. With fewer miners participating in mining, the competition among miners has become less, and the difficulty of mining will naturally continue to decrease.

During the flood season this year, a large number of already built mining farms in Sichuan will face the situation of not being able to recruit miners, and the industry leaders are also forced to go online for business. The founder of F2POOL mining pool, Qicai Shenyu, is also publicly soliciting customers for the newly built mining farm, which shows the mining depression. Perhaps before the policy comes, more mining farms will collapse due to lack of machines.

In 2020, the biggest crisis in the mining industry lies not outside the industry but within itself.

3. The price trend of second-hand mining machines and new mining machines is inverted, and mining machine manufacturers are under great pressure

There have been many strange things happening in the mining industry this year. Mines are finally oversaturated, and the price increase of second-hand mining machines is much higher than that of first-hand mining machines.

Currently, the transaction volume of first-hand mining machines in the market is sluggish, newcomers are reluctant to enter the market, and miners in the market have no motivation to change machines. After all, many miners only got their machines last year and have not yet recovered their investment.

A new mining machine priced at nearly 20,000 yuan will take two years to pay back just by mining. Xiao Jianjian also mentioned in his previous article about Bitmain S19 that Antminer S19 has excellent performance but is unlikely to become a best-selling machine.

The price of second-hand mining machines is obviously at a premium, and the price trend of second-hand machines is inverted compared to that of first-hand mining machines. No miner is willing to take the risk of two years to make back their investment, and they are more willing to play a game of betting on a good flood season.

The Antminer S9, which is priced at 200 yuan per unit, has a daily mining income of 8.5 yuan, an electricity cost of 6.33 (0.2 yuan per kWh), and a net income of 2.1 yuan per unit per day. Based on the 5-month 300-day flood season, the total income of the S9 in a flood season is 315 yuan, and the net income is 115, with a return rate of 57% in half a year, in addition to the residual value of the mining machine .

The first-hand mining machine orders for the 2019 flood season have been scheduled until the beginning of 2020, which is in sharp contrast to the dismal mining industry this year. In 2020, Bitcoin experienced its third halving, but the corresponding bull market has yet to arrive. The entire mining industry is entering a downward spiral. The mining industry, which is still experiencing twists and turns under the blessing of flood electricity prices, how can it face the new normal after the flood season ends?