It is difficult to attract investment for the Baiwan Fengshui Mine, so is it forced to take over S9?

Text | Huang Xuejiao Editor | Hao Fangzhou

Produced by | Odaily Planet Daily (ID: o-daily)

Anxiety is unbearable, which may be the common feeling of mining practitioners at present.

The entire industry chain of Bitcoin mining is too difficult.

If you are an old miner, you may have just sold your S9, which you thought was about to be phased out, at a bargain price. At the same time, you are still running some new mining machines with suboptimal energy efficiency ratios, operating them at a thermal power mine with a small profit. You want to move to Sichuan when the halving and flood season arrive, but you are facing obstruction from the owners of the thermal power mines, and you are having a headache because of this.

If you are the owner of a thermal power mine, you may have to attract investment for the vacant slots of old mining machines, and price cuts are inevitable. On the other hand, you have to argue with miners who own profitable new mining machines but still want to move to the Fengshui mine, and some compromises are inevitable.

If you are a hydroelectric mine owner, it is even more difficult. You may have to worry about not being able to find customers, and you may have to face competition. You have to give concessions to customers, engage in price wars with peers, and even pay out of your own pocket to take over old mining machines to fill the load when you really cannot recruit enough workers.

If you are a dealer, you may have a feeling of "working in vain" recently. You have handled at least thousands of old mining machines, but the profit of each machine is only 5-10 yuan. After selling 2,000 old mining machines, you still can't make enough money to buy an S19, and the few S19 (futures) you have in hand have no one interested in.

If you are a mining machine manufacturer, the new generation of machines you launched are not in large quantities, and they are not sold out as quickly as expected; on the other hand, joint mining with resource parties has been promoted for a long time. Logically, it allows resource parties to obtain mining machines at a lower cost, but when it is launched to the market, it is found that few people are willing to participate...

It is undeniable that after the halving, the price of coins has been sluggish and the industry seems to be stuck in a quagmire.

But the good news is that despite facing many difficulties, the industry has not seen a large number of miners leave in despair as in 2018. Many practitioners still firmly believe that mining is a rare business with proportional returns.

“All we need is to persist and persist until the day when the price of the currency recovers.”

Thousands of S9s sold in packages, starting at just $100

"1500 S9, 13.5T, shipped from Xinjiang, good price, starting from 100 units, 1XX! XX, you have the final say!"

“Mine for sale: Yunnan XX County, 9000 load, 5000 machine positions, bare electricity price 0.17 yuan/kWh, phone number: 136XXXX5999…

For more than a month, miners’ circles of friends have been bombarded with a large number of “promotions”.

However, many miners have shut down their machines and shipped them out, and have no intention of looking for new or old machines or Fengshui mines.

From March 12 to 13, Bitcoin price plummeted from $7,300 to $3,800. In the following 10 days, the price of the currency recovered slightly and fluctuated widely between $4,800 and $6,700.

However, because the price of the currency has been lower than the shutdown price of old 15TH/s mining machines (US$6,400) for a long time, considering the market outlook and halving risks, many miners choose to shut down and sell during this period.

The removed mining machines were taken away in batches by dealers. The picture was taken from a miner group.

Li Wenkai, who owns old mining machines such as T2T (25T) and S9, also shut down the machines one after another at this time. Among them, S9 was sold to a mining company (mining machine dealer) at a price of nearly 200 yuan per unit, and T2T is still waiting to be put on the shelf.

According to Huaqiangbei distributor Hongyu, he handled no less than tens of thousands of mining machines in those two weeks.

"They are all old customers who bought mining machines from me before. They came to me and said that the machines have been turned off and asked me to sell them in batches as soon as possible. Everyone should think that it is better to sell them now while the price has not yet reached the per kilogram price and the sooner the better." Hongyu told Odaily Planet Daily.

Even if business comes to them, due to the low unit price of mining machines (the price of S9 ranges from 1 to 300 yuan, depending on the energy consumption ratio and power supply), dealers can only make small profits and sell in large quantities.

It is reported that the unit price of S9 was previously between 500 and 700 yuan per unit, and dealers could earn tens to hundreds of yuan from each unit sold. Now, the profit of one unit is less than 10 yuan, which is comparable to the period when mining machines were sold by weight at the end of 2018.

"So I can only work harder on my business." Hongyu said with a wry smile.

According to BTC.com data, within 10 days after the big crash, the total computing power of the Bitcoin network fell to 95.2EH/s, a 22% drop from the peak of 122.5EH/s before the crash (early March), which is comparable to the drop in the mining disaster at the end of 2018 (25%). Based on the 15TH/s computing power model that was shut down first, about 1.9 million mining machines were shut down within 10 days.

The price of the currency, like the Yin-Yang Book of King Yama, determines the life and death of miners.

Under the "raid" of the black swan, both holding on or cutting losses are passive.

For miners who own old mining machines, they originally wanted to wait for the abundant water in May to extend their lives and wait for the halving market to occur, but this plunge has directly brought the "retirement day" of the old mining machines to the present. The miners have suddenly lost all their alternative options and can only shut down.

Even if they have managed to hold on until now, according to the data from the CoinIn mining pool, based on the current coin price of $6,875 and the electricity cost of 0.38 yuan/kWh, the net profit of mining for T2T (25T) and S9 has returned to zero.

Collection time: April 14, 8:00

But for many old miners, it is somewhat comforting that most of the old mining machines have already paid back their investment.

According to Li Wenkai, the Antminer S9 he has was purchased last year at a price ranging from 1,000 to 4,000 yuan. After more than half a year of continuous operation, the overall investment has been recovered.

For miners who own new mining machines, the shutdown price is lower and they can still hold on under extreme market conditions. However, if the coin price remains below the "expected value" for a long time like last month, its payback period will be lengthened again.

Miner Deng Yucheng calls himself the worst victim.

He was slow to buy new mining machines when the prices were soaring last year, but instead waited until January and February this year when the prices were lower.

"I bought two batches of new mining machines with a computing power of 50T-60T. They were not the best, but the price of the currency had been flat for a long time, and the price of the mining machine had dropped to about 150 yuan/T. I thought it was time to buy at the bottom, and I also wanted to sell the old mining machine before the halving. At the same time, I wanted to seize the opportunity of 'computing power and currency price stability' before the halving to mine. After the halving, I will transport it to the Fengshui mining farm. The subsequent currency price may continue to rise, and it may be possible to recover the investment in a year. But with the currency price at this time, it is estimated that it will take 15 months to recover the investment."

During the flood season, the mining sites are vacant and the mine owners may be forced to take over the S9

As mentioned above, the sharp drop caused millions of mining machines to shut down, and some of them were transferred to miners/mine owners with lower electricity costs to continue operating. So what is the mentality of buyers?

According to BTC.com data, compared with the lowest point of 95.2EH/s, as of 15:00 on April 14, the total network computing power has risen to 115.4EH/s in the past seven days, an increase of 21%.

Hongyu told Odaily Planet Daily that a considerable number of people who bought old mining machines like himself were owners of Fengshui mines.

Mining farm owners buy S9 not to buy at the bottom, but more out of helplessness.

Just scroll through the groups and friends circles and you will see advertisements for Fengku Mine’s investment.

A miner's conversation in the circle of friends

What exactly happened at the mine?

(1) Hydropower mine: The machine position is vacant, should I buy S9 or not?

Let’s first look at the hydropower mines where the situation is most urgent.

Hydropower mines are known as the "magic medicine" for regenerating old mining machines because of their low electricity costs. Last year, the price of hydropower in Sichuan was generally 0.24-0.25 yuan/kWh, which was about 30%-40% cheaper than the price of thermal power last year.

However, just last year, when the old mining machines S9 and other machines were able to operate on a large scale, Fengshui Mine had already shown signs of oversupply. Now, miners are dumping S9 machines one after another. Can the mine owner still successfully attract investment?

Let’s first look at why ordinary miners may not be able to run S9 even if there is abundant hydropower.

According to the shutdown coin price formula in the figure below, based on the current network computing power, difficulty and the flood season electricity price of 0.23 yuan/kWh, the shutdown price of S9 (13.50T) after halving is nearly US$9,400. In other words, Bitcoin needs to rise by 27% after halving and maintain this point before retail investors can run S9.

Of course, some miners believe that after the halving, as some old mining machines shut down, the difficulty of the entire network may be reduced, and the "coins earned per ton per day" is expected to increase. However, some miners believe that the old machines that should be shut down have been shut down, and the machines currently running are not afraid of halving. The recent increase in computing power may be due to the launch of new machines. First, the mining machine manufacturers/distributors have always had inventory for sale, and second, it is not ruled out that mining machine manufacturers have added new computing power through joint mining.

From the latter point of view, the mining cost of S9 may increase instead of decrease after halving, which is a huge risk. Even if the actual situation is more inclined to the first point of view, once the "coins per ton per day" rises, all S9s will be put on the shelves, and small and medium-sized miners at the bottom of the food chain will still lack advantages in running S9.

Most retail investors have no intention of keeping the S9 until after the halving. If the price of the currency drops, the S9 will be shut down, and the mining farm owner will face the problem of vacant machines and wasted electricity. This is undoubtedly a fatal blow to Fengshui Mine.

According to Wang Dongwen, head of Jinshan Mining, a large mining company in Sichuan, there are about 3 million old mining machines with a capacity of about 13.5T in the entire network, with a power consumption of about 4 million kWh. With this scale of power consumption, if each mine has a load of 20,000 kWh, about 200 mines will have difficulty in attracting investment.

According to Wang Dongwen, most of the miners that his mine had worked with last year have rarely responded this year. Even if a customer has tens of thousands of old mining machines, the market is still unclear and it is impossible to determine how much load can be opened, so the location of the machine cannot be determined.

What is even more frustrating is that, just like last year, the price war for flood water units has already begun. Wang Dongwen saw in his circle of friends that some of his peers have quoted a price of 0.2 yuan per kilowatt-hour, which can be described as a "low-price sale."

According to Wang Dongwen's estimation, after considering the costs of electricity, mine construction, operation and maintenance, the cost price for a mine owner to acquire a machine position is between 0.18-0.19 yuan/kWh. It can be seen that the price difference of 0.01-0.02 yuan/kWh is quite a small profit for the mine owner. Last year, the profit margin that the mine owner could realize was 0.06-0.08 yuan/kWh.

There is always a bottom line for price reduction. In addition, in order to attract miners, some mining farms also provide preferential policies such as "no deposit", "no need to prepay electricity bills", and "once the mining machine arrives at the mine, the miners will be given an advance of one month's income (a certain fee will be charged)".

"The Fengshui mine is now 'oversold'." Liu Fei of BiXin Mining said bluntly.

Zhu Yu, founder of Biyin Mining Pool, said, "Under this year's coin price, Fengshui Power is expected to fall below 0.22 yuan per kWh, which is 10% cheaper than last year."

Wang Dongwen's next plan is a bit helpless. "During difficult times, it's okay to give miners some profit, and we can discuss it. If it's still not full by the end of May, I will accept S9 or buy S9 to fill it myself."

Having said that, how much advantage does it have for mining farm owners to mine S9 themselves?

According to the formula, the shutdown price for running S9 is US$7,500, which means that if the coin price continues at the current low price after halving, the mining farm owner will also be able to run S9.

Let’s look at the investment. If the S9 still maintains the current low price of 200 yuan after halving, a mining farm with a load of 20,000 kWh will need to purchase about 14,300 S9s (13.5T), with a total investment of 2.9 million yuan. This investment is equivalent to building another mining farm.

At the same time, during the payback period, there is always a risk that the currency price may fall below its shutdown price.

(2) Thermal power mines: reducing profits to retain existing users

They are in the same boat. As Fengshui Mine’s business is depressed, the thermal power mine is also affected.

On the one hand, a large number of old-generation mining machines are being removed from the shelves. On the other hand, new mining machines that are still in use but have a lower energy consumption ratio (such as mining machines with a power consumption ratio of more than 55W/T) are also seeking to survive. The problem of vacant machines and wasted electricity is facing the owners of thermal power mines.

Li Wenkai, who was mentioned above as temporarily shutting down the mining machine, was an old customer of the mine, so the mine owner waived the additional fees. Li Wenkai was able to take the mining machine away after paying the electricity bill and the removal fee.

Miner Zhang Sheng entrusted his new mining machines to a thermal power mine in the second half of last year. Now, there is still half a year before the contract expires. However, as the price of coins has been lower than expected for a long time, and the machines are being sold at a "discount" during the Fengshui period, he intends to terminate the contract with the thermal power mine in advance and sign with the hydropower mine in advance.

However, as "profitable" models, the new mining machines are not like the old mining machines that have to be shut down. The mining farms generally stipulate various breach of contract clauses, such as withholding deposits, deducting one month's electricity bills, or even compensating for a considerable amount of losses.

Zhang Sheng introduced, "It depends on how he signed the contract with the mine at that time. It may be difficult to have clear regulations, but the mine is reasonable and can still be negotiated. Everyone is in the same boat, so he won't force it too much. Will the business continue in the future? If there are no clear regulations, then everyone will argue, each saying their own reasons, and finally come up with a clause that both parties can accept."

After several days of verbal battles with the mine owner, Zhang Sheng and his trustee finally made concessions and reached an agreement: during the contract period, Zhang Sheng was allowed to move some mining machines, but the power load must be kept above 80%, which means that Zhang Sheng could move 20% of the computing power to the Fengshui mine.

But Zhang Sheng emphasized that the premise for reaching an agreement is that both parties can still survive. If they cannot survive, they will definitely go their separate ways: either the miners will abandon the mining machines in the mine and stop paying the electricity bills; or the mine owner will decide to fight to the death and hold on to the machines, and the miners will have no choice.

Outside of this extreme situation, most thermal power mines have also expressed their willingness to share the difficulties with the miners.

According to the thermal power mine Domi Technology, the platform is considering making concessions and lowering the electricity price by 0.01-0.02 yuan per kilowatt-hour.

On this basis, Zhang Sheng said that when the flood season comes and a large number of machines are moved, the thermal power mine will officially enter the "off-season" and the electricity price will be reduced. Based on past experience, the electricity price can be reduced to 0.31-0.33 yuan/kWh.

(3) Mining is difficult, and some mines are seeking to change hands

In addition to the rental of machine positions, there are also many information about mining farms changing hands. Some of them are mining farms that have been built and operated, and most of them are bare electricity sellers.

As to why mine owners are selling their mines, the author has made statistics on several mines for sale. Some people decided to sell their mines and mining machines in exchange for working capital because the halving market was not as good as expected and there was great uncertainty in the macro-economy. Some old mines needed to be renovated before they could be used and it was difficult to rent them out at present, so they sold them to save trouble. Some mine owners invested in better resources in order to recover funds.

There is still hope for the mining industry

From the perspective of miners, mine owners and dealers, mining is currently difficult. But among all the bad news, we can still see a little hope and comfort.

(1) Limited shipments of new mining machines before and after the halving

The limited shipments of new mining machines is good news for miners, but bad news for mining machine manufacturers.

As for the scale of the newly added computing power, I believe that BiXin Mining, a large miner with 3000P computing power, is well aware of it.

According to Liu Fei, there were basically no deliveries of mining machines after the Spring Festival. This was due to delays caused by the epidemic, but more importantly, miners had low willingness to buy.

"The Antminer S19 series has been launched, and everyone can see the basic feedback from the market. As for the upcoming Whatsminer M30 series, the volume is really not that large. Because the current coin price is too bad. Now at $7,000, the mining income after halving is almost equal to last year's $3,500, but the computing power was only 32E last year, and now the computing power is 100E, you can see how bad it is. At this time, the payback period for newly purchased mining machines is extremely long, often two or three years, so who would buy them? No one knows what will happen in the next two or three years. The coin price just passed on March 12 and fell again, and no one has the confidence to buy in large quantities. Therefore, during the entire flood season, these existing mining machines should still be the ones playing the game."

F2Pool COO Dayu also confirmed that "the production of new machines before and after the halving is not large. Some manufacturers have found large customers during the chip production stage to see if it is possible to jointly mine, so as to minimize the costs of both parties. For mining machine manufacturers, it can save funds to continue chip production and survive, and large customers can also get machines at cost price. But even so, everyone's willingness is not very high."

(2) Hydropower resources are more abundant this year

Last year, during the flood season, Sichuan mines encountered drought. The rain that was supposed to fall in early May was delayed by one month, causing considerable losses to miners and mine owners. This year, just as April began, "the rain came relatively well", which can be said to have made a good start for mining during this year's flood season (but some people are worried that subsequent excessive rainfall will cause floods).

From the policy point of view, many mine owners infer that this year is better than last year. According to Liu Chong, a mine owner in Yunnan, some places were unable to supply electricity during peak hours, which was a major reason for the policy restrictions on mining; but this year, due to the impact of the epidemic, local industrial electricity consumption in Yunnan has decreased relatively, and there may be surplus electricity resources, so managers are willing to consume electricity production capacity through digital industries.

(3) Old miners’ faith still exists

Despite being pushed to the brink of exit by the "black swan", Li Wenkai firmly believes that mining is still a long-term promising business.

For Li Wenkai, who takes mining as a side job, there is no better choice than mining.

“During the year, I only need to worry about changing mines or upgrading machines. The rest of the time, it will not affect my job. I just need to wait to receive the coins.”

Secondly, in the current economic downturn, mining is difficult, and other industries are not necessarily easy. "Overall, if you mine, the rewards you put in are equal to or even greater than the returns you get, so you still have to stick to it."

Of course, in the face of the mining industry moving towards centralization, specialization and institutionalization, Li Wenkai also consciously needs to adjust his mindset.

"With more and more investors, the voice of small and medium-sized miners has become insignificant. They can easily invest millions or even tens of millions, and it's meaningless for us to invest 200,000 to 300,000 yuan. Mining is indeed different from before. In 2017, you could invest 10,000 yuan or 100,000 yuan."

“Therefore, for small and medium-sized miners, it is possible that sometimes, such as right now, it may be more appropriate for you to hold coins than to mine. For example, when the bull market signal is already very obvious, it will be very slow to wait for the mining output to cash out, so it is better to sell the coins at that time. Therefore, you must change flexibly and do what you can. You can't rush in and run into a tree at an inappropriate time.” Li Wenkai, a veteran in the mining circle, seems to have figured it out.

(Li Wenkai, Hongyu, Deng Yucheng, Zhang Sheng and Liu Chong are all pseudonyms)