Dialogue with senior miners: The flood season in June is coming, what impact will it have on BTC prices?

The flood season, which will last for about three months, is about to arrive, and a "computing power war" is looming.

On May 12, Bitcoin carried out its third block reward halving since its birth. The difficulty of mining has increased greatly. The input-output ratio of many old mining machines has become negative, and many small and medium-sized miners have left the market. However, with the arrival of the flood season, the cost of electricity has been greatly reduced, and many old mining machines can be restarted, so the competition among miners has become fierce. The flood season has reduced the cost of mining. How will the fluctuation of computing power and the interests of miners affect the future trend of BTC?

In this issue of Feixiaohao, we invited a friend who has been working in a mining machine operating company since 2015 to listen to the person at the top of the industry talk about how he views mining and BTC price trends.

1. Flood season and mining income

First, let me introduce the flood season. In most parts of my country, the flood season is from May to September, because the flow of rivers during this period is mainly replenished by rainfall or snowmelt, so it is generally during the rainy season or the spring when the temperature continues to rise.

Sichuan is the province with the richest hydropower resources in my country. The economically exploitable capacity of hydropower is about 100 million kilowatts, and the power generation in the flood season is about 400 billion kilowatt-hours. However, the characteristic of hydropower is that the power decays in the dry season. Calculated based on the installed capacity of 100 million kilowatts of hydropower, Sichuan's hydropower generation capacity in the dry season is only about 30 million kilowatts.

Last month, Sichuan Province published a list of 99 companies in the first batch of hydropower consumption demonstration enterprises in 2020, mainly to allocate the unused electricity during the flood season to some companies to avoid wasting resources. There are many blockchain companies on this list (presumably companies with mining farms).

Let's take a look at the electricity costs in three different periods: the flood season, the normal water season, and the dry season. This is a contract on electricity prices from a first-level hydropower station in Sichuan provided by a mine manager:

Low water season: January 1st - April 24th, November 26th - December 31st, electricity price: 0.35/KWH

During the normal water period from April 26 to May 25 and October 26 to November 25, the electricity price is 0.25/KWH

During the flood season from May 26 to October 25, the electricity price is 0.15/KWH

Feixiaohao has also previously calculated the mining cost formula:

Daily net income = [mining machine computing power/(current difficulty*2^32)]*current block reward*24*60*60*coin price-electricity fee

According to the formula, it is not difficult to calculate that the level of electricity charges almost directly affects the miners' net income from mining every day.

Miner friends told us, "Sichuan only provides hydropower during flood season, and basically no hydropower during dry season, which makes it difficult to operate. If a mine only operates during flood season, there will basically be no good power construction, and they will stop after making a profit, and they need to make a quick return."

2. Mine owners and miners: not everyone can mine

Mine owners refer to the people who operate and manage the mines. According to them, they do not have a single mining machine of their own. The mining machines are purchased by investors and then entrusted to them. Therefore, these miners are not the owners of the mining machines. They mainly make profits by charging the difference in electricity charges.

"During flood season, the cost is 0.15-0.21, and the selling price is 0.19-0.26; during dry season, the cost is 0.385-0.4, and the selling price is 0.4-0.46. The normal electricity price throughout the year is 0.35."

Miners are the owners of mining machines, and the way they make money is naturally by mining coins and then selling them.

Of course, some people have both identities. They have their own mining machines to mine, and they also sell resources and services, helping many people with strong investment capabilities to manage hundreds or thousands of mining machines.

High-power mining machines running in the mine

"Our group is generally composed of experienced miners. We only accept mining machines from some fixed customers, and we do not accept machines below 60T. If I accept all kinds of machines, and the quality is poor, the computing power is unstable, and the repair rate is high, then it is easy to lose money if the customer accepts such machines. At present, machines like Shenma M20S 68T or above have very stable computing power, very low repair rate, and good power consumption ratio. If the customer chooses this type of machine according to our hosting requirements, then he is unlikely to lose money."

Having said this, the miner friends happily showed off some of the machines they had received.

The picture shows the Shenma M31S 72T Bitcoin mining machine. The reference price is 9519 yuan

He continued, "Mining with high-power mining machines is definitely profitable. The price is about 10,000 yuan per machine, and it can normally mine for 3-5 years. So as long as you don't get scammed when buying the mining machine, don't get scammed by the mining farm during the operation of the mining machine, and find a suitable mining farm for operation and maintenance, mining will definitely be profitable."

“No matter what the price is?”

“Yes, no matter how much. Currently, the daily return of investing in mining machines is about 0.3% of the investment amount.”

People often ask how to make money by mining BTC. Perhaps the words of this old miner friend are worth thinking about. The threshold for mining itself has been continuously raised. If you don’t have a lot of money to buy a batch of expensive new mining machines, find a reliable mining site and cheap electricity costs, you can basically only be at the bottom of the mining competition and make wedding clothes for others.

3. How do miners view BTC price trends?

We know that BTC is created by miners, so as a miner friend described it: "We miners are the issuers of Bitcoin and are at the top of the industry ecosystem."

What do the top people in the industry think about the price trend of BTC? For example, Bitcoin almost reached 10,000 US dollars.

" There are about 5-8 million mining machines in the industry, and the competition is fierce. If the price of the currency falls, it will actually be beneficial to us. "

"If the price of bitcoin plummets, the Shenma M20/30/31 series will basically not shut down unless the bitcoin price drops to zero. We hope that all mining machines below 60T will be shut down, so that our advantages can be reflected. You know, high-power mining machines are always short, and they definitely hope that bitcoin will fall, so that I can mine more coins, because bitcoin mining is based on the currency standard, and I can make more money if I can mine more bitcoins.

Mining machines require electricity bills once a month, so as long as you pay cash once a month, there will be a two-month transition period. We all know that Bitcoin will definitely rise, right? So I hope that it will fall in the next few months, so that after I mine a lot of coins, Bitcoin will start to rise in a few months, and I can make a lot of money."

A mine deep in the mountains of Sichuan (the white roof in the picture)

Will the miners take the initiative to drive down the price of coins?

“Miners are basically senior Bitcoin consensus supporters, so they won’t deliberately smash the market or anything like that. Besides, the market’s big-band points are definitely not as accurate as ours, so there is no possibility of suppressing the market.”

“What do you think about BTC reaching 10,000 USD?”

"For example, several of our mining farms have been using mining machines from the Shenma M20S 68T and Antminer S17 series since September and October last year. So we hope that the price of Bitcoin will be as low as possible. We did not agree with the price going up to $10,000, but we could not stand the pressure from the mining machine manufacturers, who were pushing the price up to $10,000. We did not agree, but considering the overall interests of the miners, we had no choice."

This section probably means that in order to attract investment and sell mining machines, mining machine manufacturers will raise the price of coins to attract people to buy mining machines for mining. We all know that since the halving, many old mining machines that cannot keep up have to be replaced, and some miners may leave the industry directly, which is very unfavorable for the sales of mining machines. Then they have to raise the price of coins to attract new customers. This motivation for raising the price is basically established logically.

However, as to whether the mining machine manufacturers really have the ability to increase the price of coins, and whether they really manipulate the price of coins, it is impossible to verify, and everyone needs to think independently based on this information. But it is not bad to know these things after all. Whether you are preparing to engage in mining or just investing in coins, you should learn more about the overview and operation of the industry's upstream.

At this point in the interview, we asked the last question: Will miners speculate in spot or play contracts?

The answer I got was: those who really run mining farms basically run them as businesses, so the positioning is very clear. In other words, the circle I am in basically does not play contracts or speculate on cryptocurrencies.

Summarize

In fact, mining investment and buying coin investment are the same from some perspectives - high risk, high return, both require investigation and discernment. The risk of mining lies in the purchase of mining machines and mining farm hosting, and the high return is 0.3% of the principal can be stabilized every day; the risk of buying coins is that you don't know when it will plummet, but the return is skyrocketing.

Investing in a mine during the flood season does not necessarily guarantee that you will make money, so newbies should not trust it. Moreover, there is no investment method in the world that can make money without any investigation or analysis. Feixiaohao will be committed to providing more data for ordinary investors to refer to and analyze, to help everyone better identify projects and avoid pitfalls.