Out of the shadow of the epidemic, the mining industry is preparing for halving

Text | Kyle

Editor | Wen Dao

Due to the outbreak of the COVID-19 pandemic, the upstream and downstream of the mining industry were briefly affected at the beginning of the year. With the official resumption of work at various ports, the mining industry is gradually returning to normal. Whether it is mining machine manufacturers, mining pools, mine owners or miners, they are beginning to prepare for the real tough battle - Bitcoin halving.

The third Bitcoin mining reward halving is expected to occur on May 11 this year. At that time, the Bitcoin block reward will be reduced from 12.5 per block to 6.25, and the Bitcoin inflation rate will be reduced from 3.72% to 1.79%, which is lower than the US dollar's target inflation rate of 2%.

Mining machine manufacturers such as Bitmain have begun to launch new products, miners are actively "preparing for battle", and mining farms across the country are also operating at high speed.

There are only two and a half months left before the halving. Historically, the first two Bitcoin halvings have led to a bull market. However, for mining practitioners, the halving is like "surviving a catastrophe". After the "harvest" is reduced, the price of Bitcoin directly determines the two fates of miners: making money or encountering mining disasters.

Since the beginning of the year, the computing power of the Bitcoin network and the difficulty of mining have continued to rise, approaching the historical high. Under the prosperous scene of the mining circle, the volatile market conditions have brought uncertainty. Mining professionals remind that it is necessary to improve risk control awareness.

In early 2020, the outbreak of the new coronavirus pandemic disrupted the mining industry's preparations for the halving of Bitcoin production.

Since the beginning of the year, Shenma Mining Machine has issued a notice that the manufacturer's Spring Festival holiday will be extended from January 30 to February 9, and the arrangements for production, delivery, after-sales delivery and repairs have been delayed due to the epidemic. Domestic mainstream mining machine manufacturers have also been affected. Artem Eremin, product manager of ASIC mining machine retailer 3Logic, revealed that the shipment of mining machines from Bitmain and Canaan Creative has also been delayed by at least one week.

Announcement on the Delayed Reopening of Shenma Mining Machine

The manufacturer's delay directly led to the situation where mining machine dealers were also unable to ship. A mining machine merchant at Shenzhen Huaqiangbei SEG Electronics Market revealed that the market opening time was repeatedly adjusted. It was originally scheduled to open on February 10, but was later postponed to the 18th. "The price of coins has risen a lot recently. It is a good time to sell mining machines, but I can only watch and worry."

A relevant person in charge of the Shenzhen-based Panda Miner told Honeycomb Finance that during the epidemic, offline businesses such as mining machines and mining farms will inevitably be affected, including logistics delivery and reduced production and manufacturing efficiency, and some mining farms are also facing a shortage of maintenance personnel.

Jiang Zhuoer, founder of Litecoin Mining Pool, revealed on February 4 that one of his mines located in the suburbs of Xinjiang was forcibly closed by police and was not allowed to resume work.

Mining farms that have not been forced to shut down are also facing problems such as untimely updates and inability to repair mining machines. A mining farm owner said in an interview with the media that the new machines ordered before the New Year have not been delivered during the epidemic, and the damaged machines cannot be repaired in time. "With the halving, the expansion plan can only be put on hold for the time being."

People related to the Future Mine revealed to Fengchao Finance that the main problem they faced under the epidemic was that some offline activities and promotions could not be completed. They could not meet with some customers face to face. In response, they established an online office platform to minimize the impact of the epidemic. "Fortunately, the capital chain is healthy, so there is not much pressure on cash flow."

Relatively speaking, online businesses such as mining pools have been less affected by the epidemic. People related to the BTC.com mining pool told Fengchao Finance that the business has not been affected and everything is running as usual. After the New Year, customers' docking with mining pools has been carried out in an orderly manner.

As the epidemic prevention work has achieved results, various companies have gradually resumed work. Many mining practitioners have recently stated that the impact of the epidemic has gradually weakened.

On February 14, Zhang Wencheng, sales director of Shenma Mining Machine, said that the company's production has resumed and some logistics are unblocked, but not all mines are accessible. Since it is impossible to inspect the sites and mining machine manufacturers, large-scale investment may be affected to a certain extent.

Honeycomb Finance has learned that at present, mining machine manufacturers such as Bitmain, Canaan Creative, and Panda Miner have also resumed work one after another. As logistics gradually become smoother, mining machine manufacturers can basically produce and sell as usual.

After gradually emerging from the shadow of the epidemic, the mining community has begun to fully prepare for the halving.

On November 28, 2012, Bitcoin halved for the first time, and the price rose from $13.49 to $1,047.5, a 77.65-fold increase; the second halving occurred on July 10, 2016, and Bitcoin soared from $620 to $18,711, more than 30 times. For mining practitioners, Bitcoin halving is a grand event that happens every four years.

The growth of the total network computing power reflects the increase in miners' enthusiasm for mining. On February 28, the total computing power of the Bitcoin network exceeded 117.79E, and the computing power increased by more than 17% this year.

The increase in computing power also brings about an upgrade in mining difficulty. According to data from BTC.com, the mining difficulty of the entire network was 15.49T on the 28th, close to the historical high. Compared with the same period last year, the mining difficulty has increased by 1.55 times.

Bitcoin mining difficulty nears all-time high

The relevant person in charge of Panda Miner told Honeycomb Finance that the current mining machine market is in a state of supply exceeding demand. As the market recovers, mining revenue has increased by nearly 50%, and miners' demand for mining has increased.

At present, major mining machine manufacturers are actively increasing production capacity and launching new machines with better energy efficiency. Cora Jiang, global marketing director of Computing Power Interconnect, observed that major mining machine manufacturers have begun to launch new products, miners are also looking for mining sites, and upstream and downstream companies in the mining circle are looking for new opportunities. "From a side perspective, the halving of Bitcoin production has once again activated the vitality of the entire industry."

Bitmain took the lead. On February 27, the company announced the mining machines S19 and S19Pro equipped with the latest 7nm chips, and shouted the slogan of "reaching the top of computing power". It is reported that the two new mining machines will be available for sale soon.

Although Canaan Creative, the "first stock" in the mining industry, has not launched new machines recently, it has also put a lot of effort into marketing. According to Canaan Blockchain CEO Shao Jianliang, Canaan Creative has launched many plans such as mining machine mortgage, 0 yuan purchase, and installment purchase to increase sales. In addition, miners can lock in mining income by purchasing products such as options.

As the market demand for mining increases, Mars Finance has also entered the market. On February 27, Mars Finance launched Mars Cloud Mining, which is similar to an e-commerce platform for mining machines. Users can purchase mining machines and mine online, becoming miners with one click.

Lu Feng, an old miner, felt the excitement before this round of halving. He told Fengchao Finance that preparations for the halving began in the second half of last year. At the end of last year, the market was down, and Bitcoin fell to $6,600, and the Ant S9 mining machine had reached the shutdown price. But in order to welcome the halving, most miners did not want to stop mining. They looked for low-cost electricity while improving mining efficiency by modifying or updating mining machines.

Aman posts a countdown poster for the halving every day on WeChat Moments. He is an operator of a mine in Balang Mountain, Kangding, Sichuan. At the end of April, the flood season in the southwest is approaching, and coupled with the impact of the halving, his mine began to recruit miners on a large scale for booking and hosting.

The mining industry was very busy before the halving. Especially under the wealth-creating effect of the previous two bull markets, miners were full of expectations for this halving. However, many industry insiders believe that the essence of mining is leveraged investment. Before the halving, blindly mining without countermeasures is like gambling. Mining accidents and bull markets are sometimes just a fine line apart.

In essence, every time the mining reward is halved, it is like a tribulation for miners. Yu Yang, COO of Kuanghaihui, once said that when the income is halved and the cost remains the same, the miners' profit is not halved, but shrunk to one-third of the original. This is because the difficulty of mining is constantly increasing, and the payback period of mining machines is also getting longer. Therefore, miners should be fully prepared before the halving.

Shenyu, founder of F2Pool mining pool, said that mining is actually a medium-term bullish option on the mined currency, so mining should be viewed with a financial mindset, and miners need to do a good job of risk hedging and management.

Shenyu revealed that he completed the replacement of the new generation of mining machines before the Spring Festival and chose the high point to do some hedging. He suggested that miners should make decisions in advance before and after the halving, such as replacing mining machines with lower power consumption and looking for lower electricity prices. When the market is good, do a good job of hedging to protect profits.

Judging from the growth of the total network computing power, many miners have begun to gamble on the halving market. Alina, head of the OKEx mining pool, said that if the price of Bitcoin does not rise as expected after the halving, the mining costs of miners will be higher than the income, and the mining industry is likely to be reshuffled for a period of time.

“After the halving, large miners can cover their costs, and even purchase mining machines, lying dormant and waiting for good market conditions to make a fortune.” Alina believes that the possibility of halving causing mining accidents is not great, but it is both an opportunity and a risk for miners, and miners should enhance their risk control awareness.

According to the last Bitcoin halving, after the halving in July 2016, the price of Bitcoin only rose slightly. It was not until a year later that the price of Bitcoin rose rapidly from $2,400 to a peak of nearly $20,000. For miners, whether they can survive the "accumulation period" after the halving is particularly critical.

The bull market came a year after the last Bitcoin halving

Shao Jianliang said that mining builds the intrinsic value of Bitcoin. After the halving of Bitcoin production, miners' income will decrease, but due to the imbalance of supply and demand in the market, the value will be compensated by the increase in prices. In the medium and long term, the bull market is the general trend. However, during the halving process, miners need to think more.

He reminded that miners should focus on two indicators when mining, one is the daily output and consumption of the mining machine, and the other is the change and growth of the computing power of the entire network, so as to respond in time.

The halving is now underway, and the entire mining industry is facing both opportunities and risks. Miners need to consider whether they can withstand the pain of shrinking profits. During this period, the competition is about who is more forward-looking and risk-aware.