Bitcoin issues a life-threatening question, and exchanges, miners, and DeFi are forced to hand in their papers

Text | Huang Xuejiao, Qin Xiaofeng, Wang Ye Editor | Hao Fangzhou

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

Coin data shows that in just half an hour from 18:30 to 19:00 yesterday, the total liquidation of the entire network was US$565 million, and the number of liquidations was more than 19,000 people; in the past 24 hours, the total liquidation of the entire network exceeded US$3.2 billion, and a total of 116,000 people became victims of liquidation.

Over the past 48 hours, we have witnessed history together.

The global financial market has encountered multiple waterfalls. The U.S. stock market has been under circuit breakers for two consecutive days. Yesterday, it experienced the largest drop since 1987, with the three major stock indexes closing down nearly 10%. In the morning trading today, the Asia-Pacific stock market plummeted across the board, the Korean stock market triggered a circuit breaker, the Japanese stock market plummeted 10%, the Shanghai Stock Exchange opened down more than 4%, the blockchain sector opened down 5.41%, and the Shenzhen Stock Exchange Blockchain 50 Index fell 5.27%. Even the spot gold, which has performed well recently, was sold off, and the gold price plummeted, once falling below $1,560 today.

Bitcoin, which has been debated recently as a safe haven, is even worse. According to BitUniverse data, from 18:00 Beijing time yesterday, Bitcoin fell from $7,300 to $5,500, a drop of 25%, and closed at $6,100 in the evening; at 7:00 this morning, Bitcoin fell again, once falling to $3,800, and then rebounded to $5,000.

As of press time, Bitcoin was temporarily reported at US$5,216, with a 24-hour drop of 28% (the maximum drop was close to 50%), and other cryptocurrencies generally fell by more than 30% in 24 hours.

Contract users suffered heavy losses. Coin data showed that in just half an hour from 18:30 to 19:00 yesterday, the total liquidation of the entire network was US$565 million, and the number of liquidated people was more than 19,000; in the past 24 hours, the total liquidation of the entire network exceeded US$3.2 billion, and a total of 116,000 people became victims of liquidation.

Under the extreme market conditions, the "infrastructure" of the cryptocurrency circle has also experienced multiple challenges. Mining machines have fallen below the shutdown price, exchanges have experienced frequent downtime and bugs, and lending platforms have been liquidated on a large scale... All the hidden risks in the industry that we turned a blind eye to when the market was good before have become the cause of panic and spiral stampede today.

So when this epic "test" comes, how do vertical industries react, what answers do they give, and what problems do they reflect?

For the upstream mining industry, although the computing power of the entire network has not dropped, the shutdown prices of old mining machines, from the old S9 to the new Ant S17, have been quickly broken, and many mining machines are mining at a loss. Once the price of the currency continues to fall, a large number of miners and mine owners may be instantly liquidated.

Complaints about exchanges have been heard one after another today, with display anomalies, delayed withdrawals, forced liquidation of short orders, severe OTC premiums, contract spikes... Although several exchanges have issued announcements to explain the reasons, retail investors who have suffered heavy losses are not buying it.

The DeFi market was also deeply affected. The ETH plunge caused severe congestion on the Ethereum network, skyrocketing fees, delayed DEX matching, and centralized liquidation on decentralized lending platforms. Stablecoins, due to their extremely high positive premium, have become a temporary residence for mainstream coin sellers to transfer their assets.

The chain reaction caused by the collapse of Bitcoin continues, and it is not just retail investors who cannot bear it.

The computing power is stable, but the "mining disaster" has arrived

We guessed a "mining accident", but we never thought it would happen in this way - before the Bitcoin production was halved, the price of the currency was halved first.

According to the data from the CoinIn mining pool, based on the current coin price of US$5,000 and the electricity cost of 0.38 yuan/kWh, the profits of mining machines with unit computing power consumption exceeding 65W/T have all become negative, including old models such as the first-generation Ant S9.

In addition, high-performance new-generation mining machines such as S17 and M21S from manufacturers such as Bitmain and Shenma are also operating with tiny profits of a few cents to a few dollars, and even when the coin price briefly reached US$4,000, all of them were unable to make ends meet.

However, with such mining profits, according to data from BTC.com, since the coin price plummeted 20 hours ago, the "total network computing power" deduced from the number of blocks has increased instead of decreased.

Data as of 10:30 on March 13

As shown in the figure, the average computing power in the last day is higher than that in the last three days, that is, the computing power on March 12-13 is higher than that on March 10-11.

Let’s look at the hashrates published by various mining pools. The top 10 mining pools have almost all experienced varying degrees of hashrate declines in the past 24 hours, with BTC.com and Huobi.pool experiencing the most severe hashrate losses, at nearly 10%.

According to a rough estimate, the top ten mining pools, which account for 88% of the total computing power of the entire network, lost a total of 3.28EH/s of computing power in 24 hours. Based on the computing power of the Ant S9 (15T), which is most likely to shut down, the total number of shutdowns in the entire network is 220,000, which is far less than the last mining accident.

From November 15 to 25, 2018, Bitcoin fell from $6,500 to $3,652 (a drop of 43.5%) in 10 days, breaking through the prices of many mining machines, causing the computing power of the entire network to plummet by 25%, and 600,000 to 800,000 old mining machines were removed from the shelves. However, this time, the price of the currency fell by a similar amount, but the computing power of the entire network did not change.

This seems to be a good thing, indicating that miners are optimistic about the short- and medium-term price of the currency, and they insist on turning on the machines even if they make little profit or even lose money, which in turn protects the security of the Bitcoin network. However, in the long run, this anomaly also has hidden concerns.

First, let’s take a look at the current scale of “mining at a loss”.

Previously, several senior industry insiders told Odaily Planet Daily that out of the 100E computing power at the end of 2019, 50E came from old mining machines at the 15TH/s level, and the remaining 50E mainly came from new mining machines at the 50TH/s level and above.

The basis for this estimate is that in October 2018, the total computing power of the Bitcoin network reached a peak of 53EH/s, but since then, as the price of the currency plummeted, mining machines have been shut down and taken off the shelves. It was not until the end of May of the following year when the market improved and the flood season arrived that it rebounded to 53EH/s. During this period, almost no higher-performance mining machines were mass-produced. Therefore, this approximately 50E computing power is believed to come from old mining machines.

For these mining machines, it is still profitable when the price of the currency remains above 45,000 yuan (6,400 US dollars). Judging from the price trend of the currency over the past year, before March 12, Bitcoin had never fallen below this point since May last year, which means that these old mining machines have not really been shut down and removed from the shelves on a large scale.

The multi-level waterfalls on 12-13 broke through this point without any warning. Perhaps many miners have not yet come to their senses to take further measures, or are still waiting for the price of the currency to rise again.

In this regard, Biyin Mining Pool told Odaily Planet Daily that even if miners decide to shut down, it will not be so fast in practice. For example, the mine needs to notify and seek the opinions of customers; secondly, many mines have reported their electricity consumption to the relevant departments, so it is inconvenient to shut down suddenly. For customers who cannot afford the electricity bill, both parties may choose to temporarily rent the machine to the mine to continue operating. For mine owners, their electricity costs will be much cheaper than customers, so it is not necessarily a loss for the mine to run the mining machine. If the electricity price is 0.24 yuan/kWh, the Ant S9 will still have a few cents of profit when it is turned on.

Old miner Achang also believes that not shutting down the machines means that large-scale losses have not yet occurred. At this time, the electricity bill for the old mining machines that are still online is probably only a few cents.

However, if some miners really mine without profit or even at a loss or in debt, it would not be wise in the face of the unclear coin price and the upcoming halving of production.

Assuming that the price of the currency drops further in the near future, the losses of these mining machines may increase overnight and they will have to be removed from the shelves immediately, resulting in vacant machines and inability to consume electricity, which may force many miners and mine owners to sell their assets. For miners who have to mortgage loans because they are reluctant to sell, or who have been struggling for many days and have already had tight cash flow, the fluctuating currency price is a sword of Damocles that can fall at any time.

Even if the coin price can remain stable or even rebound slightly in the near future, the halving that will arrive on time in two months will make these old mining machines "unprofitable."

The old mining machines are still resisting stubbornly, not to mention the new 50-60 W/T level mining machines that have been in service for less than a year and are far from paying back their investment, even though their daily profit is less than 10 yuan.

On the other hand, even if miners intend to dump their machines, can they easily find so many buyers at this time?

At a time when the global economy is loosening its monetary policy, seizing certain and stable returns may be the best strategy and the general choice of most investors. Therefore, for miners who have already lost their cash flow, perhaps preserving their strength and preparing for worse situations is the best choice.

No matter how much the price of the currency drops, the computing power will not drop significantly. This outcome may have been destined from the moment miners invested heavily in mining machines.

Exchanges’ response to the plunge, USDT premium, and contract failure

Every extreme market situation is a big test for the exchange.

On the one hand, it is a test of technical strength. A sharp rise or fall will prompt a large number of users to flock to the platform to conduct transactions. Excessive traffic in a short period of time can easily cause congestion or cause trading engine failure.

Odaily Planet Daily found that multiple trading platform apps, including Huobi, OKEx, and Binance, were stuck, and users refreshed and saw no network connection. Another user reported that OKEx also had a short-term "display problem", with the spot assets held by users showing as zero, but it soon returned to normal.

(Huobi OTC is temporarily unable to trade USDT)

After the failure occurred, the exchanges also responded immediately. At 9 p.m. last night, Huobi issued an announcement saying that it had solved the congestion problem by expanding capacity and user transactions had returned to normal; other exchanges also issued announcements saying that the failure problem had been resolved.

Although many old users are used to the "process" of "extreme market conditions → exchange downtime → emergency repair and return to normal", compared with the traditional trading market, this "currency market norm" should not be taken for granted. Exchanges still need to continue to improve their technical strength, expand throughput performance, and ensure that users can still trade normally under extreme market conditions without damaging their interests.

On the other hand, it is a test of trading depth. Odaily Planet Daily counted the lowest prices of BTC in the three major exchanges during the plunge from the perspectives of spot, delivery contracts, and perpetual contracts, as shown below:

• BTC spot lowest price: Huobi (3800 USDT), OKEx (3791.9 USDT), Binance (3782.13 USDT);

• BTC/USD lowest contract price of the week: Huobi (3686.81 USD), OKEx (3677.89 USD);

• BTC perpetual contract lowest price: OKEx (3728.8 USDT), Binance (3621.8 USDT);

Among them, Huobi performed well in spot and weekly delivery contracts; OKEx performed well in perpetual contracts and average in spot performance; Binance perpetual contracts deviated significantly from the current price in the short term.

In addition, some users reported that ERC20-USD on Huobi and Binance could not be withdrawn, causing panic: the exchange inflated USDT and is now facing a redemption crisis, and USDT may collapse.

In this regard, Huobi Global CEO Qiye said that the Ethereum blockchain was blocked and the withdrawal was not possible. "Huobi has not stopped withdrawals, and there is no data error or so-called hacker. Affected by the drastic market fluctuations, the ETH network has been seriously congested, and the deposit and withdrawal of ETH and related ERC20 series currencies have been greatly delayed. The number of pending transactions in the packaging stage has reached 110,000. After the ETH network returns to normal, the deposit and withdrawal speed of related currencies will also return to normal. Please be patient and wait. It is recommended that Omni-USDT be selected for USDT withdrawals."

In addition to the "inability to withdraw cash", USDT also saw a substantial positive premium this time. Affected by the demand for risk aversion, investors have exchanged cryptocurrencies such as Bitcoin for stablecoins, causing the USDT premium to reach 14.29% at one point, a record high. In Huobi's OTC trading area, the USDT OTC price once exceeded 8 yuan, and has recovered to 7.46 yuan as of press time.

At 1:27 am Beijing time today, Tether minted 60 million new USDT. Paolo Ardoino, Chief Technology Officer of Bitfinex, said: "This is an authorized but unissued transaction (not a real increase), which means that the amount will be used as inventory for the next issuance request (i.e., the reserve for the next increase). After that, at 3:27, Tether printed another 30 million USDT.

Compared with spot players, contract users suffered much more.

Coin data shows that in just half an hour from 18:30 to 19:00 yesterday, the total liquidation of the entire network was US$565 million, and the number of liquidations was 19,023; in the past 24 hours, the total liquidation of the entire network exceeded US$3.2 billion, and a total of 116,000 people became victims of liquidation. Among them, the largest single liquidation occurred in Huobi, with a position value of US$58.32 million.

After this round of short-selling crush, the total BTC holdings in the entire network have dropped by 32% in the past 24 hours and are currently reported at US$1.46 billion.

OKEx trading data shows that the BTC leverage ratio has now dropped to 0.15, a new low this year. Previously, the BTC leverage ratio once rose to 32, a record high.

Odaily Planet Daily once again reminds investors: contracts are risky and you should be cautious when entering the market.

Ethereum's plunge tests DeFi market

The plunge in the cryptocurrency market also triggered a wave of liquidations in the DeFi market. The plunge in ETH once caused serious congestion in Ethereum, which in turn led to delays in DEX matching. Gas fees surged in a short period of time, and stablecoins also experienced varying degrees of positive premiums. As of press time, DAI had a premium of 3.48% compared to USDT.

However, most DeFi platforms have taken emergency measures to deal with this. MakerDAO announced today that it will start auctioning MKR to repay $4 million in bad debts. As of press time, MakerDAO investor Paradigm and DeFi lending platform Dharma have announced their participation in MakerDAO's MKR auction. Derivatives trading platform dYdX announced that it would increase the platform's minimum transaction volume to 25 ETH/5000 DAI to cope with excessively high gas fees.

According to DeFi Pulse data, as of press time, the total locked-in amount of DeFi has dropped to 610 million US dollars. The locked-in amount on March 12 alone decreased by 200 million US dollars. According to the highest point of this year, the locked-in amount of 1.23 billion US dollars has decreased by 50%. However, the decrease in the total value of DeFi locked-in assets is mainly affected by the halving of the prices of mainstream currencies such as BTC and ETH, and is not due to the sudden decrease in users' mortgaged assets.

According to data from debank.com, as of press time, the total amount liquidated on DeFi lending platforms on March 12 exceeded US$23.3 million, and the total amount liquidated on March 13 reached US$5.24 million, with a total liquidation of nearly US$30 million in two days.

Analyzing the data on March 12, MakerDAO had the highest liquidation amount, reaching US$5.95 million, accounting for 37% of the total DeFi liquidations; Compound's liquidation amount was approximately US$4.81 million, ranking second in terms of liquidation scale; dYdX's liquidation amount was approximately US$3.73 million, ranking third in terms of liquidation scale.

On the other hand, the plunge also caused serious congestion on Ethereum. According to DApp Total data, at around 9 pm on March 11, the Ethereum transfer fee was 24.19 ETH per hour, while at 9 pm on March 12, the Ethereum fee reached 355 ETH per hour, a 15-fold increase from the previous day.

According to the Ethereum browser etherscan.io, the number of pending transactions on Ethereum has doubled, reaching a maximum of 123,661 on the evening of March 12, and then eased slightly. Currently, there are 78,763 pending transactions.

Excessively high gas fees even caused MakerDAO’s oracle price feed system to suspend for a period of time.

In order to deal with the high gas fees, Antonio Juliano, the founder of dYdX, immediately gave a solution on Twitter: On the evening of March 12, Antonio announced that the minimum transaction volume on dYdX would be increased to 10 ETH/2000 DAI, while there would still be no transaction volume limit for user liquidation, and the stop loss point would continue to operate normally. As the cryptocurrency market continued to fall, Antonio said on Twitter this morning that the minimum transaction volume would continue to be increased to 25 ETH/5000 DAI.

MakerDAO announced yesterday that it will launch an executive vote to adjust parameters on March 13 (today). The proposed adjustments focus on auction parameters and ensuring that the Dai price is pegged to $1. Some of the adjustment parameters include: the Sai stability fee is reduced from 9.5% to 7.5%; the Dai stability fee is reduced from 8% to 4% (applicable to ETH and BAT); the Dai deposit rate difference is reduced to 0, which will set the deposit rate (DSR) to 4%.

The biggest problem that this market crash has brought to the DeFi market is still large-scale liquidation and network congestion. The reason for the congestion is more due to Ethereum's own performance problems, and has little to do with the upper-layer applications built on Ethereum. On the other hand, the DeFi market will also affect the development of the entire Ethereum and the value of ETH. After all, DeFi locked assets account for about 10% of the ETH market value. Once the DeFi market is lost, the value of ETH will be reduced, and Ethereum will lose a very important application scenario in the future.

At the beginning of this year, the expectation of the "halving year", the continuous introduction of favorable policies from various countries, and the independent trend of the digital currency market compared to the traditional financial world all boosted the optimism of traders. However, within just a few days, with the decline of virtual currencies across the board, market sentiment took a sharp turn, causing a certain degree of stampede and considerable panic.

Perhaps, for a new market that has only been around for ten years, it will need to experience a few black swans before it can mature faster. Hopefully, the disaster recovery capabilities and risk control levels of traders and practitioners can withstand better system testing.