BTC price halved, 30% of mining machines may be shut down

Text | JX kin

Editor | Wen Dao

The unprecedented waterfall market on March 12 once again caused the outside world to question the safe-haven properties of BTC, and also made currency market investors, DeFi platforms, and miners in the mining circle witness the huge risks before the halving market.

After that, each link began to carry out "post-disaster reconstruction" and repair. Some contract investors lowered their positions and began to manage their profit and loss more strictly; some miners stepped up the deployment of low-energy mining machines to avoid shutdown; some DeFi platforms began to carry out large-scale debt liquidation...

As of 20:00 on March 15, BTC was temporarily reported at $5,400, a 46% drop from this year's high of $10,000. The hard-hit cryptocurrency market will enter a new period of reshaping.

"It doesn't matter whether to rebuild or not (after the disaster). This market is like this, with large fluctuations." Contract trader Yu Lei (pseudonym) gradually recovered from the currency disaster on March 12. Not only did he reduce his position, he also did not forget to set a stop loss line.

Recalling the waterfall market last Thursday, Yu Lei is still frightened. "I was so confused at the time that even drinking water couldn't calm me down." He lost 10% that day because of long positions. Fortunately, he closed his positions in time to avoid a margin call.

Around 6:30 pm on March 12, Yu Lei was about to go home from get off work when a colleague in the office asked him, "Bitcoin is at 7,200, is it time to buy the bottom again?"
He joked, "Why buy at the bottom? Just open a long order." He did open a long order, half an hour before the waterfall began. Before he left the office, the phone on the table vibrated repeatedly, reminding him that the $7,000 stop loss line he set was about to be triggered. He quickly opened the exchange account to check whether all his pending orders had been sold.

On March 12, the lowest price fell to $5,550

At that time, the market line on the screen took a sharp turn downward. Yu Lei, whose client network was intermittent, breathed a sigh of relief when he saw that all his stop-loss orders were closed, "The contract lost 10%." Within 10 minutes, Bitcoin fell from $7,200 to $5,555, a drop of 32%. The media person who updated the market report lamented, "The speed of writing articles cannot keep up with the speed of price drops and data changes." At the same time, mainstream currencies such as Ethereum and EOS also fell, and the market page was all red.

According to the social trading platform Hetongdi APP, during this period, the market had a total of 1.317 billion US dollars in liquidation, equivalent to more than 10 billion yuan. Yu Lei was glad that he had set a stop loss reminder and his position was not forced to close, otherwise he would have become a contributor to the 10 billion yuan liquidation.

The data on the amount of liquidated positions did not stop there. The next morning, the price of Bitcoin fell again, falling to a low of $3,800, a 24-hour drop of more than 50%, and the amount of liquidated positions reached $4 billion, affecting about 140,000 contract traders.

The contract trading market was littered with corpses, and spot investors were not spared either. Investor Wang Lei (pseudonym) sold one-third of his holdings, but he did not intend to leave the market. He was still waiting for an opportunity to buy at the bottom. In the end, he bought some Bitcoin when it was more than $4,000. His intention was to "lower the cost of holding positions."

This sharp drop has called into question the safe-haven nature of Bitcoin. International oil prices plummeted, and the U.S. stock market was halted twice in four days. When the new coronavirus became a global crisis, there was no evidence that funds in the traditional financial market would flow into the currency market led by Bitcoin at this time.

When Bitcoin's safe-haven properties are no longer prominent, the plunge has caused it to return to its speculative nature, and the market's consensus on it has once again encountered a crisis. Those who remain are still those who love to trade freely in the currency market and play high-risk games.

"Bitcoin still has value." Although the value may need to be reshaped, Wang Lei believes that BTC will continue to rise slowly. "In the long run, it is still a target that will continue to rise. Slowly increase your position and look for long-term opportunities."

Despite the market decline that day, the number of active Bitcoin addresses rose to a new high in 2020. Data provider CoinMetrics showed that the number of addresses on the Bitcoin blockchain reached 909,600 on that day, and then fell slightly in the next two days. As of March 14, the number of addresses totaled 772,700, an increase of 4% over the same period last month and 50,000 more than the bull market of the same period last year. In fact, on March 11, the number of addresses holding 1 BTC or more BTC had reached 795,630.

In addition, the transaction volume also rose sharply on March 12, reaching 2.35 million BTC. From the data, the market decline did not disperse BTC holders.

Miners are also hurt like investors. This sharp drop has become a large-scale testing ground for the risks of the halving market, and some mining practitioners have begun to become alert.

"You must not increase leverage." Marvel Capital's Bo He reminded her peers. In the second half of last year, she founded the Marvel Mine and entered the mining circle. Currently, the main mining machines in operation are M20S and Ant T17. "The Marvel Mine mainly operates self-operated high-computing power machines, so the impact this time is not significant."

The unexpected plunge in the cryptocurrency market has put a damper on Mint’s confidence in the halving. When the pandemic hit at the beginning of the year, she had a premonition that the economy would be affected. “The market’s reaction to the pandemic was a continuous decline in the stock market, but I didn’t expect oil to fall so much.” It eventually affected the cryptocurrency market.

In response to the market warning brought about by this decline, Bohe told Fengchao Finance that it is necessary to iterate mining machines as much as possible and use mining machines with low power consumption ratio to maintain computing power advantage in the market. "The wave of miners who increased leverage at the end of last year are now really having a hard time."

As of March 15, Bitcoin rose to $5,200. According to F2Pool data, the two main mining machines operated by Qimiao Mining Pool currently account for 72% and 82% of electricity costs respectively. Machines with high power consumption and low computing power, such as T2T and S9, can only be temporarily shut down.

Unit power consumption is 60W/mining machine electricity costs account for nearly 90%

Yu Wei, founder of Zhijian Xinyun, also mentioned in an online event that the decline in coin prices has a huge impact on mining operations. He estimated that one-third of the mining machines will choose to shut down. In May this year, there will be a four-year production cut. The coin price will be halved before the output is halved, which will cause many mining plants to be unable to find suitable machines or even shut down.

Yu Wei believes that miners’ confidence will also be frustrated, and investment will decrease, which will cause mining machine manufacturers to reduce production, and mines may face the problem of having no machines to find. “It is best to find ways to increase revenue and reduce expenditure, transform the mines, make the sites more suitable for new models, and work towards higher standards.”

Bo He also believes that this round of price drop will also accelerate the iteration of the entire industry. The sharp drop is not necessarily a bad thing for the mining machine market. Manufacturers will also speed up the upgrade and iteration of machines in order to expand the market. She estimates that the current market situation may last at least half a year, and the price will not be immediately pulled up after the halving. "Experienced old miners may have prepared funds and are ready to buy mining machines at the bottom."

Compared with centrally managed cryptocurrency businesses, the sharp drop has had a large-scale impact on the decentralized financial market for the first time, and emerging mortgage lending products have suffered a series of collisions.

At 4 p.m. on March 12, BlockVC founding partner Xu Yingkai warned on Weibo that if Ethereum falls to $160, MakerDAO, the world's largest DeFi project, will start large-scale liquidation and closing of positions. "I don't know if this will become a systemic risk in this round of decline."

(MakerDAO Weibo response)

MakerDAO officially forwarded this Weibo and responded that this picture is a single-collateral version, which only accounts for 1/6 of the entire system. The entire Maker system mortgage rate is around 300%, and theoretically it can withstand an 80% drop, so there is no need to worry too much.

Subsequently, MakerDAO officials responded again that 80% means that Maker can withstand 80% of the market volatility risk and maintain the robustness of the system. It is recommended that users who are about to reach the 150% liquidation line repay their debts as soon as possible.

Three hours later, the price of the currency fell sharply, and some users were liquidated because they had not paid their debts in time. ETH not only fell below $160, but also fell directly to $87 the next morning.

Data shows that on March 12 alone, the total liquidation amount of DeFi platforms exceeded US$11 million, and large liquidations occurred on multiple DeFi platforms. Among them, the liquidation amount of the Compound platform exceeded US$4.6 million, accounting for nearly 40% of the total DeFi liquidation amount; dYdx liquidation amount was approximately US$3.74 million, ranking second in liquidation scale, and MakerDao liquidation amount was US$2.59 million.

On the morning of March 13, ETH fell to $87, and a large number of loans fell below the collateral threshold, triggering a liquidation process. According to the rules, the liquidation process is carried out in the form of a collateral auction, and users can obtain collateralized Ethereum by bidding DAI. However, due to the market collapse, some liquidators won the auction of the Ethereum collateral liquidation process with a DAI bid of $0, which resulted in MakerDAO having an outstanding loan debt of $4 million.

On the same day, MakerDAO announced that it would start the "debt auction" of MKR governance tokens in the next two days. Currently, the auction has not yet taken place. The head of MakerDAO China told Fengchao Finance that the auction will start on March 19th, Beijing time.

After a large amount of funds were liquidated, the total amount of DeFi locked positions plummeted. According to Defi Pulse, as of 3 pm on March 15, the total amount of DeFi locked positions had dropped to US$380 million. This figure was US$850 million before the price drop on March 12.

DeFi has also experienced a financial crisis in this market waterfall, and the decentralized financial market will also enter a reshaping period during the liquidation process.

Almost every link in the cryptocurrency industry, which relies on market conditions to make money, has suffered damage in this disaster. After the cryptocurrency crash, it is not only the mining machines, mining farms and trading systems that need to be upgraded, but also the confidence of investors.