Bitcoin plunge: mining circles under pressure and exchanges reshuffle

"From the initial loss of a Porsche, to a Mercedes-Benz and a BMW, the next one will probably be an Audi or an Alto. Digital assets have rapidly depreciated from eight figures to five figures. The price of witnessing history is too expensive..." A person in the cryptocurrency circle complained to the Beijing Business Daily reporter. The multiple large price fluctuations of Bitcoin in recent days have brought a huge crisis to the entire cryptocurrency industry. In addition to asset impairment, what is even more frightening is that they will also face unemployment. The Beijing Business Daily reporter learned that, on the one hand, some small virtual token exchanges (hereinafter referred to as "exchanges") have no business to do due to the loss of customers due to the decline in trading volume; in addition, the upstream mining industry has also suffered a considerable impact. Due to high costs and low coin prices, some mines have been shut down.

Mine shutdown and closure

"It has never been so difficult." Li Ming (pseudonym), who works in the mining industry, sent three crying emojis to the Beijing Business Daily reporter, and then sighed deeply. Li Ming told the reporter that he had been suffering from insomnia for several consecutive days, mainly because of the recent sharp drop in virtual tokens such as Bitcoin, which has caused everyone in the industry to feel insecure. Recently, the price of Bitcoin has experienced many extreme waterfall-like declines. The most recent one was on March 16, when the price of Bitcoin fell again after a short-term rapid rise, from the highest point of the day of $5,824 to $4,583, a half-day drop of 21.3%.

The avalanche of Bitcoin, coupled with the impact of the epidemic, has brought a strong sense of crisis to the upstream and downstream industries of the currency circle. Among them, the upstream mining industry, from mining machine manufacturers, dealers, miners, mining farms and even mining pools, the entire mining industry chain is facing huge challenges. Mining machine manufacturers, dealers, mining pools, etc. are facing a sharp drop in business volume, while miners and mining farms are facing an unprecedented life-and-death test.

"The price of bitcoin has been cut in half, and we miners are the ones who feel the most pain." Li Ming told the Beijing Business Daily reporter that due to the increased difficulty of mining, the reduced output, and the "halving" of the price of bitcoin, the mining income of many miners can no longer cover the costs. Take bitcoin mining as an example. At present, the difficulty of bitcoin mining has greatly increased compared with before, and the block speed has also decreased by 3 times or more. The halving of bitcoin production in two months will also greatly affect the income of miners. However, despite the reduction in income, the cost remains high. Li Ming said that at present, even if the price of bitcoin is low, miners still need to sell bitcoins to pay the monthly water and electricity bills or rent. If this continues for a long time, the mining circle will undergo a major reshuffle.

The relevant person in charge of the CoinIn mining pool also introduced that the mining income of miners mainly produces virtual tokens, and the costs include mining machine costs, electricity costs, maintenance costs and other costs. In simple terms, if the value of virtual tokens produced every day is greater than the operating costs, it is profitable and can continue to mine; but if the price of the currency falls badly and gradually falls below the cost line, it will choose to shut down to reduce cost consumption. He further pointed out that the impact of falling currency prices on mining often has a delayed phenomenon, and predicted that if such a low currency price continues for another half a month, more than 25% of the mining machines may be shut down on a large scale.

Exchange business plummeted

Many people pointed out that the plunge of virtual tokens such as Bitcoin mainly affects upstream mining companies. At present, some mining farms have been shut down. In addition, in the cryptocurrency exchange industry, the sharp drop in currency prices has led to a large reduction in business, which has also posed a great threat to the exchange business. Beijing Business Daily reporters learned from various sources that the current business model of exchanges mainly relies on user transaction fees, currency listing fees, issuance of platform coins or contract transactions to make profits. In addition, some exchanges will also add some innovative business models such as "membership system" or US dollar rewards to attract user investment.

An employee of an exchange told the Beijing Business Daily that due to the impact of the epidemic and the sharp drop in the price of coins, many small exchanges are on the verge of bankruptcy and even unable to pay wages. On the one hand, the assets of the entire cryptocurrency circle have shrunk dramatically, causing a huge impact on the cash flow and asset reserves of some exchanges; on the other hand, the trading volume of some small exchanges has been diverted by large exchanges, resulting in a large number of customer losses and no business to do.

However, in addition to bankruptcy and withdrawal, there are also some exchanges that continue to come up with new tricks to attract user investment. The aforementioned practitioners revealed that at present, there are some unknown exchanges in the market that cooperate with the so-called "teachers" in the currency circle. The "teachers" are responsible for guiding the market, and the exchanges operate the platform currency prices, thereby deceiving investors to invest and cause losses.

Liu Feng, director of the Blockchain Technology and Application Research Center of the Institute of Artificial Intelligence and Change Management of Shanghai University of International Business and Economics, pointed out in an interview with a Beijing Business Daily reporter that at present, the exchange industry is in chaos. On the one hand, we must be vigilant against individual exchanges or some public chain institutions running away due to trading or redemption crises; on the other hand, we must also guard against exchanges using currency price plunges or other illegal means to attract investors to engage in so-called "all-in" bottom fishing (which can be understood as buying at the bottom with all assets).

Consider stopping losses in time

"At present, whether it is engaged in the mining industry or exchanges, or the currency circle media and project parties, practitioners have begun to withdraw from the circle." Li Ming told the Beijing Business Daily reporter that from "Black Monday" to "Black Week", from the current situation, it is unknown when the industry will be able to improve, and the first thing everyone is considering now is how to stop losses in time. At the same time, Liu Feng also pointed out that under the background of the global economic downturn caused by many black swan events, the currency circle cannot be immune. In the face of the crisis, the concept of cash is king has caused many large holders of virtual tokens to sell in large quantities, which has further caused panic in the market. In his opinion, the industry's sluggish situation may continue for a long time. In response to crises such as tight cash flow and shrinking assets, he suggested that on the one hand, relevant blockchain companies should make good asset allocation and prepare for the asset winter. On the other hand, practitioners should also be fully prepared to keep warm in this crisis.

However, in response to market chaos, he further proposed strengthening institutional supervision and public opinion propaganda to protect the safety of retail investors' funds and assets.

It is worth noting that virtual token speculation and trading are illegal investment activities in China. Many industry insiders unanimously stated that on the one hand, there is no clear legislation and policy positioning, and many companies are skirting the law because there is no law to rely on; in addition, the public has difficulty in understanding some expert and technical remarks, which also makes it possible for fraudulent activities. Therefore, it is not recommended for ordinary consumers to participate in such speculative activities where the risks outweigh the benefits.

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