The liquidity "bottleneck" of mining machines after halving

There are still about two weeks before the Bitcoin halving. The price of the currency has bottomed out and rebounded after experiencing multiple shocks. The sudden increase in Bitcoin in the past 24 hours seems to be welcoming the arrival of the halving. What new challenges and opportunities does the mining machine market face under the halving?

Mining machine market

There are still about two weeks before the Bitcoin halving, and the price of the currency has bottomed out and rebounded after experiencing multiple shocks. The mining reward is halved, and the supply of newly issued Bitcoins will be reduced by 50%, which will ease the pressure on the supply side and promote the rise of the currency price, but it will also bring more challenges to miners.

The earliest Bitcoin mining was calculated by the CPU of an ordinary computer. As the difficulty increased, mining had stricter requirements on computer computing power, and the market experienced the development of GPU, FPGA, and ASIC mining machines. In early 2013, the first ASIC mining machine Avalon came out, and the mining industry officially entered the ASIC era. The rise in Bitcoin prices has brought more profit margins, but also raised the intensity of competition to a higher level, prompting more funds to flow into the research and development of chips and mining machines with lower energy consumption and stronger computing power. With the update and iteration of mining machines, the market demand for the transfer, recycling and replacement of mining machines is also growing.

With the advent of the era of high computing power, mining machine production and chip design have evolved from simple high computing power and low energy consumption to high stability and high reliability. The historical price of mining machines and the price of cryptocurrencies show a strong correlation. At the highest point, they can be traded and sold on the market at several times the price, showing financial attributes different from physical assets. On March 12, Bitcoin's price plummeted to $4,000 amid a sharp shock in the global financial market, falling below the $100 billion market value. The daily mining income of many mining machines is no longer enough to cover the electricity bills and operation and maintenance costs, so they have to be shut down and removed from the shelves. How to deal with the obsolete and removed mining machines is a problem that most miners will encounter during the mining process.

Liquidity “bottleneck”

The service life of mining machines using ASIC chips is affected by factors such as the quality, operation and maintenance, energy consumption ratio, and total network computing power of different manufacturers, and is generally 2-3 years. Unlike ordinary fixed assets, although ASIC mining machines will also face problems such as consumption and depreciation, due to the increase in computing power costs, mining machines are generally eliminated by the market before they reach their physical service life. From the perspective of value asset turnover, the gradual loss and period-by-period transfer of the value of mining machines is not absolute. During the period when cryptocurrency prices soared, the mining machine market was in short supply and prices rose accordingly. However, when cryptocurrency prices fell, mining income decreased or even became negative, and the supply chain of the mining machine market was far higher than the demand, further hitting the liquidity of mining machines. When faced with shutdown prices, miners usually have three options: transfer mining machines to areas with lower electricity prices and continue mining; sell mining machines to miners with low-cost electricity resources to recover part of the cost; if they cannot be resold, abandon and recycle mining machines and then turn to newer and better-performing machines.

At present, there is no second-hand mining machine sales platform that is relatively complete in all aspects. In early April, there were 8 mining machine transfer-related information on Mining Machine Bay Second-hand Bitcoin Mining Machines, while on Caiyun Bit, there were a total of 183 transfer information in the first half of April, most of which were mine farm advertisements and agent advertisements. There were very few real second-hand mining machine transfer information. On the LBU platform, a total of 35 transfer information was released in early April, with a total transfer quantity of 3,697 units. Similar to mining machine sales websites, forums such as the mining machine second-hand forum are also full of advertising information with low information quality. The flow of mining machines in the market, both in terms of the number of mining machines and the number of active participants, is far below expectations.

Figure 1: LBU mining machine transfer information release 4.1-4.14

Cloud computing power & compliance platform empowerment

Most of the high-quality mining farms and power resources are in the hands of large miners and institutions. When the price of coins goes down, the liquidity problem of mining machines is particularly severe for small and medium-sized miners. As a new form of mining, cloud computing power can solve the problem of mining machine liquidity to a certain extent. Compared with traditional mining, cloud computing power has the advantages of lower capital threshold, higher stability, and no maintenance. Once launched, it has attracted widespread attention and discussion. The cloud computing power model transfers part of the mining risks from miners to the platform, while increasing the centralization risk - the destination of funds, the quality of the mining farm, the actual income, etc., and has common mining risks such as a long cycle and uncertainty in the future price of coins. At present, the cloud computing power trading market has yet to be developed, and second-hand transactions and repurchases of sold cloud computing power cannot be realized. The liquidity of mining machines has improved, but there is still a lot of room for improvement.

Only with the standardization of the industry, as well as the emergence of higher-quality and credible mining machine trading platforms and products, can the liquidity of mining machines be fundamentally improved and the investment value of mining machines be increased. At the same time, the price of mining machines will inevitably be affected under the halving market, and inefficient mining machines will be eliminated, while mining machines with healthy profit margins will be able to share more shares, which is a process of transition from inefficiency to efficiency, and then stabilize the downward pressure and achieve long-term growth.