On the eve of Bitcoin halving: the price of the currency exceeded 10,000 yuan, but mining machine manufacturers were clearing out their stocks at a 50% discount. Are there dangers behind the frenzy?

On the eve of the halving, the price of Bitcoin once again reached $10,000, and the players in the cryptocurrency circle went crazy.

Exchanges and cloud computing platforms have also begun to use the halving hotspot to launch marketing. They have begun recruiting troops and preparing for the "halving market."

But can the halving really come as scheduled?

Faced with the uncertainty brought by the halving, most mining machine manufacturers are pessimistic and have begun to clear out their mining machines to control risks.

Miners are enjoying the last moments before the halving - they know that after the halving, a major reshuffle is inevitable.

"Bitcoin has exceeded 10,000 again!" Many cryptocurrency players were celebrating this morning.

Huobi data showed that at around 8 am on May 8, the price of Bitcoin broke through the $10,000 mark, reaching a high of $10,060.

Although the price of Bitcoin only stayed above $10,000 for a few minutes, many players were still excited.

In fact, the price of Bitcoin has been rising since April 22. Compared with the lowest price of $3,800 on March 1, the current increase in the price of Bitcoin has reached 157%.

Why is the price of Bitcoin rising? Many players believe that this is because of the positive news of "halving" - on May 12, Bitcoin will once again see its production halved.

Halving is an important design of Satoshi Nakamoto for Bitcoin. On January 9, 2009, Satoshi Nakamoto officially released the first version of Bitcoin software, and he stipulated that the mining output of Bitcoin would be halved every four years.

This time, Bitcoin will usher in the third halving in history, and the mining reward for each block will drop from the current 12.5 BTC to 6.25 BTC.

The halving makes Bitcoin "deflationary". Many players believe that the halving of Bitcoin production will reduce market supply and the price of the currency will rise as a result.

Historically, the first two halvings of Bitcoin were accompanied by a sharp rise in the price of the currency. In 2012, the first halving of Bitcoin saw the price rise by nearly 8,200% in one year; in 2016, the second halving of Bitcoin saw the price of Bitcoin rise by more than 2,200% in the following 18 months.

The "halving market" mentioned by cryptocurrency players comes from this.

Stimulated by the halving trend, the entire digital currency industry has become excited.

"The first thing I do when I wake up every morning is to check the price of Bitcoin. After looking at the price, I decide whether to go to work." A player made up such a joke.

The jokes are not without any basis in reality. "I am now like the people in the jokes, staring at the market from morning till night and having no time to work," Wang Meng, a cryptocurrency player, told Yiben Blockchain.

The cryptocurrency communities began to become active. Emojis such as “All in” and “Fortune is sought in danger” began to flood the groups.

"It feels like I'm back to 2018. I can't keep up with the messages in the group and my phone is slowing down," said Wang Meng.

As the halving date approaches, miners are becoming more active .

On May 3, 2020, the latest difficulty adjustment data of Bitcoin was released, and the mining difficulty reached 16T, close to the historical peak. The computing power of the entire network also increased significantly, exceeding 120EH/s.

Data shows that Bitcoin miners' enthusiasm for mining is unprecedentedly high.

Bitcoin mining difficulty curve Source: BTC.com

Mining has always been at the forefront of Bitcoin halving. Once Bitcoin is halved, miners’ income will also be cut in half.

"The mining circle is now entering its final frenzy. Everyone is buying mining machines, increasing computing power, and the S9 is also running." Miner Wu Di told Yiben Blockchain.

The F2Pool data shows that based on the current coin price and mining difficulty, when the electricity price is 0.25 yuan/kWh, the daily income of the Ant S9 mining machine is 14.23 yuan, the electricity bill is 7.8 yuan, and the net income is 6.43 yuan.

In other words, if the price of the currency remains unchanged, after the output of Bitcoin is halved, the daily income of Ant S9 will become -0.7 yuan. S9 will be completely eliminated.

“Now we have to squeeze out the last bit of value from the S9 and rush to mine Bitcoin before the halving,” said Wu Di.

At the same time, more powerful miners have already laid out other digital currencies in advance.

“Bitcoin will halve this year, but Litecoin will not. I started planning a Litecoin mine at the beginning of the year,” miner Chen Ping told Yiben Blockchain.

The last Litecoin halving occurred in August 2019, and the next one will occur in 2023.

"Compared with the beginning of the year, the price of Litecoin mining machines has doubled, and the price of graphics card mining machines for mining small currencies has also increased." Chen Ping said.

On the eve of the halving, exchanges also began to move.

Recently, many digital currency exchanges have launched marketing activities related to "halving".

On April 14, Huobi Exchange launched the "Production Reduction Prophet" activity. Players can predict the currency with the largest increase on that day every day, and they can get rewards if they make a successful prediction.

An employee of a second-tier exchange told Yiben Blockchain that his exchange has not planned any large-scale events related to the halving recently, but has also launched a halving-related special page on the App and official website, and produced a number of promotional posters related to the halving.

“At the same time, the company is also recruiting to prepare for the possible increase in trading volume after the halving,” he said.

Cloud computing platforms are also not willing to be left out and have taken advantage of the marketing opportunity on the eve of the halving.

For example, the RHY cloud computing platform published an article on its official website titled "A Review of Bitcoin Halvings: Mining is an Excellent Way to Get Rich Quickly", saying that choosing to mine after the halving "is to seize the opportunity at the starting point of a new cycle" and calling on miners to "mine more as the halving increases."

“Before a major event like the halving, exchanges and cloud computing will definitely take the opportunity to hype up the market and exaggerate future market increases to bring in customers for themselves,” said Sun Yuan, a blockchain researcher.

But outside of exchanges and cloud computing companies, mining machine manufacturers are very calm, even a little pessimistic.

Faced with the uncertain price trend of the currency after the halving, some mining machine manufacturers began to clear their inventory and sell mining machines at low prices.

"The new Avalon 1066 Pro mining machine with a computing power of 55T has a spot price of only 3,960 yuan." A salesperson of Canaan's Avalon mining machine told Yiben Blockchain.

On the Avalon official website, the price of Avalon 1066 Pro is still shown as 7150 yuan, which is equivalent to a 55% discount on its transaction price in reality.

"It's not just us. Currently, all mining machine manufacturers are offering discounts. The lower the computing power of the mining machine, the bigger the discount." The salesperson said, "Mining machines are not selling well now, and many miners are waiting and watching."

Ebang International, which launched its IPO in the United States last month, pointed out in its prospectus that the halving of Bitcoin may bring risks to the company: "As the rewards for Bitcoin mining decrease, the productivity of Bitcoin mining machines may decrease."

In its prospectus, Ebang International said that it is not clear how the market will respond to the Bitcoin halving. In addition, the future trend of Bitcoin prices and economic returns in the mining industry after the halving is also unclear.

Previously, Bitmain carried out a round of layoffs in January this year.

Media reports said that Bitmain’s internal explanation for layoffs was that the Bitcoin halving brought uncertainty and costs needed to be cut.

Compared with players, retail investors and exchanges, the business operations of mining machine companies are more mature and standardized. The latter's pessimism about the future of the market may indicate that the "halving market" will not come as scheduled.

"I personally think that the cryptocurrency market is in a very tangled position right now," financial columnist Yin Haotian told Yiben Blockchain.

In his opinion, the halving of Bitcoin is a well-known positive, but the emergence of the new crown epidemic has brought complex impacts to the currency market.

For example, Bitcoin plummeted in early March, overturning the idea that "Bitcoin is a safe-haven asset" in many people's minds.

Yin Haotian pointed out that as the epidemic situation stabilizes and countries are overissuing currency to save the economy, the price of Bitcoin has also begun to rise.

“But Bitcoin is the only one that stands out in the entire cryptocurrency market, which will overdraw the benefits brought by the ‘halving’. Once the benefits are exhausted, the entire cryptocurrency market will face a downward trend again,” he said.

Sun Yuanyuan pointed out that halving does not mean that the price of the currency will rise: "BCH and BSV have been halved for a month, but the increase is not as good as Bitcoin."

As two major forked coins of Bitcoin, BCH and BSV completed their halving on April 8 and 10 this year respectively. However, their price trends are not ideal:

Since the halving, the price of BCH has fallen by 11% and the price of BSV has fallen by 3%. During the same period, Bitcoin has achieved a 38% increase.

In addition, Litecoin, which was halved in August 2019, has seen its price fall by 50% since the halving.

“In the cryptocurrency world, if Bitcoin goes up, most other coins will follow suit. BCH and BSV not only did not go up, but they went down instead, which shows that the idea of ​​‘coin prices going up after halving’ does not exist at all,” said a player.

In this regard, Sun Yuan pointed out: "In the cryptocurrency circle, 'the price of the currency will rise after the halving' is not a consensus, but 'the belief that the price of the currency will rise after the halving' is the consensus. Halving, as a major event in the history of Bitcoin development, may allow more people outside the circle to understand Bitcoin. The entry of newcomers is the driving force behind the rise in the price of the currency."

Data platform Bitinfocharts shows that the average Bitcoin transaction fee soared to $2.944 on April 30, reaching the highest level in nearly 10 months.

Average Bitcoin transaction fee curve in the past three months

Image source: Bitinfocharts

"The increase in transaction fees indicates that investors' demand for Bitcoin has increased, which is most likely the result of new entrants into the market," said Sun Yuan.

Against the backdrop of a sluggish global economy and central banks around the world flooding the market with money, Bitcoin may have once again attracted the attention of a group of new retail investors due to its "anti-inflation" characteristics.

Digital currency analyst Marty Greenspan predicted on Twitter that Bitcoin’s annual inflation rate after the halving will be lower than that of gold.

Generally speaking, the lower the annual inflation rate, the less likely the currency is to depreciate. After the new round of Bitcoin production halving, the annual inflation rate will be reduced from 3.65% to 1.8%.

For comparison, gold’s current inflation rate is 2.5%.

Since April, the number of active Bitcoin addresses has started to rise. “This may be a sign of overseas retail investors entering the market,” said Sun Yuan.

In history, the halving market also needs a long period of brewing before it can finally explode. The Bitcoin halvings in 2012 and 2016 led to the bull market reaching its peak a year later.

At the moment, the halving of Bitcoin may bring about a new round of reshuffle in the mining circle.

“After the Bitcoin halving, the price of the currency has to rise to between $13,000 and $15,000 before I can break even,” miner Zhang Chuan told Yiben Blockchain.

If the price of the currency does not meet expectations, he is likely to shut down some of the mining machines in order to protect himself.

In the face of the upcoming halving, many miners are faced with such a life-and-death decision - once the price of Bitcoin falls instead of rising, mining farms with high electricity costs and high-power-consuming low-end mining machines will have to shut down.

Currently, about a quarter of the network’s computing power still comes from S9-era mining machines. In November this year, when the first flood season after the halving ends, these mining machines will basically die.

Miners who fail to replace their high-computing-power mining machines in time may be eliminated at that time.

"After this, the entire mining industry will develop in a more professional direction," said Zhang Chuan.

On the eve of Bitcoin halving, the price of the currency hit a new high, and the currency circle seemed to have a lively party.

Some people are excited about the market brought about by the halving, while others are worried about the market after the halving - will Bitcoin also be like BCH and BSV, rising sharply before the halving and falling after the halving?

“On the day of halving, I was ready to sell out all the coins I had,” said a cryptocurrency player.

On the eve of Bitcoin halving, people in the circle have their own thoughts.

*Some of the interviewees in this article are pseudonyms.

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