Mining puzzle: When the halving market encounters the epidemic

Author: Wang Dashu

No egg can be safe under the epidemic. Mining, as the only physical industry in the blockchain, has suffered a great impact. The postponement of resumption of work, suspension of production and suspension of sales have brought about a series of chain reactions in the industrial chain. All businesses in Huaqiangbei have been closed, and some are unemployed or doing micro-business. Dealers are reselling computing power or anchoring overseas markets. Only the mining farms and small miners who completed their heavy warehouses before the New Year are relatively safe. However, with the uncertainty of the rise and fall of the coin price brought about by the halving, everyone has their own thoughts and difficulties.

01Impact on production and sales

"In view of the current serious epidemic situation, the start date is yet to be determined. During this period, partners can find part-time jobs on their own." This was the company's notice that Lu Yuan, a salesperson stationed at SEG, received in the work group on February 2. At present, most mining machine salesmen are unemployed at home, and some have started side jobs. For example, Lu Yuan, who has recently been buying masks and selling beer in WeChat Moments, has evolved into a micro-business.

The picture shows Lu Yuan's transformation into a WeChat business seller

In fact, due to the gradual decline of Bitcoin prices in the second half of 2019, the sales commission was changed from a percentage system to a unit price system, with a commission of 50-100 yuan for new phones and as low as 5 yuan for second-hand phones. At that time, Lu Yuan had to chase after potential customers every day, and sometimes he had to take the initiative to give discounts.

It was not until around December that the price of the currency began to recover and more customers began to actively consult and purchase.

"In the two months before the New Year, the overall revenue was much better than before. However, since there are no new phones delivered by manufacturers recently, I am still mainly selling second-hand phones. Although I don't make much money on a single phone, the volume is large. Sometimes I can sell 2,000 phones in one order. Moreover, I not only sell them but also stock them, so I can make a lot of money in the middle." Lu Yuan told Liancatchus that he actually planned to take a vacation starting from New Year's Day, "to come back early after the New Year, wait for the market to go high and new phones to be delivered, and try to earn more commissions." All he saw were the good scenes he had expected.

The market situation is as expected, and the epidemic is coming one after another.

Lu Yuan revealed that there is no base salary during the sales period, and if the goods can be sold, the commission will increase by 50% on the original basis. Despite this, it is still difficult to improve performance. " In addition to the logistics delays caused by the epidemic, the upcoming halving has also made most customers more cautious, so there is basically nothing to sell. " He said with a little helplessness.

In fact, before the epidemic, the halving of Bitcoin was the most concerned by everyone. "Bitcoin's halving every four years is written in the code like the constitution. There is no uncertainty in itself. The variables are generated by people's expectations of it." Before the Spring Festival, Xiong Yue, director of the Bixin Research Institute, said in an interview with Chain Catcher.

In his opinion, the number of bitcoins produced in the first two halvings was 25 and 12.5 respectively, while the 6.25 this time is relatively small and the total amount of bitcoins is larger than the previous two times, so some miners believe that the halving in 2020 will not cause a big fluctuation in the price of bitcoins. The starting point for the bulls is that assuming that the daily demand for bitcoins remains unchanged, the number of bitcoins produced in each block will decrease by 6.25, the supply will be less than the demand, and the price of the currency may rise sharply.

In addition, given that after the halving, the inflation rate of Bitcoin will drop to 1.8%, which is lower than the target inflation rate of 2% of the US dollar, it is likely to attract all kinds of funds from all over the world to enter the market to store value, thereby indirectly raising prices.

In fact, whether to be bullish or not must be analyzed based on a variety of factors. It is very difficult to predict which factors play a dominant role. The only constant is that once the price of the currency plummets, miners will sell off machines and coins in large quantities.

After all, mining is an investment directly linked to the price of coins. When the price of coins rises, everyone will benefit, and vice versa. Salesman Lu Yuan is well aware of the opportunities. He is optimistic about the halving, and many of his friends who used to work in operation and maintenance have also started their own businesses before the New Year. Therefore, he would rather make a living by doing micro-business than accept the kindness of the former mine owner who invited him to do operation and maintenance again, because in his mind, sales have a promising future, while operation and maintenance have a ceiling.

However, after the epidemic, people's judgment on halving has changed.

“At the end of January, the S9s that had been shut down started running again, and the computing power of the entire network surged again. However, due to the impact of the epidemic outbreak on the production capacity and transportation of mining machine manufacturers, the computing power will not surge in the short term. So under the current difficulty, miners benefit and the profits are considerable,” said Bo He, founder of Qimiao Mining.

Bo He is an early participant in the Bitcoin community. She witnessed the peak of Bitcoin’s price after its first halving in 2013, when BTC was nearly $1,200 per coin. She also witnessed the market after the halving in July 2016, when BTC reached $20,000 per coin in February of the following year. This year is the third halving, and she has a lot of feelings.

"It is different from 2013, when miners could still influence the price of BTC to a certain extent. However, as the mining industry has developed to this day, the size of the futures market has doubled, and capital has been deeply involved in the secondary market. It is no longer the era when miners can influence prices." According to her, many senior miners began hoarding Bitcoin and mining machines at the end of last year, but some miners took a wait-and-see attitude and did not increase their positions. However, it is also difficult to increase their positions now.

Just imagine, if there were no epidemic, those miners who were on the sidelines might have been the customers that Lu Yuan was thinking about.

02 Impact of computing power popularity and financialization of mining

"For sale: Inner Mongolia mining farm's E12-44T computing power, available for the whole year or half a year, can be paid in installments." This is the content of an advertisement forwarded by Ling Yan from a colleague selling computing power.

Compared to Lu Yuan, who has been in the industry for three years, newcomer Ling Yan is relatively anxious. "I started selling mining machines in the second half of 2019. Just two months after the performance started to improve, I was kept at home by the epidemic. It was really annoying." However, she still posts screenshots of quotations on her Moments every day to maintain relationships with potential customers, and sometimes forwards advertisements from peers selling computing power, both to prepare for the resumption of work and to try her luck.

This type of computing power is generated by mining farms or miners (some manufacturers and distributors also have their own mining farms) who cut out a portion of the computing power generated by their own mining farms and sell it to those in need. It is equivalent to bundling the mining machine and operation and maintenance for sale. The buyer earns coins during the contract period and obtains ownership of the machine after the expiration of the contract. The buyer is generally a senior miner who wants to hoard a large amount of computing power and is very familiar with the industry.

Ling Yan told Chain Catcher that computing power cutting is now a popular "product" that can avoid the obstacle of logistics and allow buyers to earn profits on the same day. For example, Bitmain recently launched BitDeer, a platform dedicated to selling computing power.

In addition to selling mining machine computing power, cloud computing power sales are also relatively active. Purchasing cloud computing power is equivalent to leasing someone else's mining machine for mining. The buyer earns coins during the contract period, and the ownership of the mining machine is returned to the seller after the contract period. Compared with actual computing power, it is not cost-effective.

Computing power and cloud computing power, as financial derivatives of the mining industry, have more uncertainties than physical mining machines and have not been widely recognized before. The main reason for their popularity is that they are not physical and are not restricted by logistics, making them suitable for the current situation.

In Mint's view, if we ignore the investment risks and only look at the perspective of industrial evolution, the popularity of computing power trading to a certain extent means the trend of industrial financialization. "As the price of Bitcoin becomes more and more stable, many mining companies have begun to lay out cloud computing power, mining pools and other industrial chains. In August last year, PayPal and Avalon jointly launched a financial service for purchasing mining machines for 0 yuan. Renrenbit and Matrixport are also providing similar financial services."

In addition, she also predicted that the mining industry will be reshuffled during the halving and will usher in a seller's market, but the prerequisite is that manufacturers can smoothly deliver production capacity to the market, which seems a bit difficult under the epidemic.

The halving is a question of whether manufacturers can seize the opportunity, but the current problem is the stagnation of production and sales. The delayed resumption of work has put on hold a series of links required for the production of mining machines, including material procurement, production organization, sales, transportation, and after-sales. Although the impact is not as great as that of traditional industries such as catering and tourism, if the epidemic continues, revenue will be difficult and internal friction will also be a thorny problem.

Recently, mining machine manufacturers Bitmain, Canaan Cloud Intelligence, and Shenma Mining Machine have announced the postponement of mining machine production, delivery, after-sales arrangements and services. Futures are still on sale and customer service is still online. However, recently, the Avalon official website showed that Avalon 1066 is on sale and shipped by SF Express. A buyer told Chain Catcher that he bought 10 units by SF Express to the Sichuan mining farm, and the shipping cost was 1,600 yuan, about three times the usual.

03The overall mining field is stable, and a small number of mines are closed

In addition to manufacturers, distributors are naturally also affected to a certain extent. Some resell computing power, some rely on overseas markets, some have no warehousing and are stagnant, and some have inventory and are worried about the objective costs.

Among them, Lu Yuan's company chose to resell overseas. Before the New Year, it stockpiled 10,000 second-hand L3+ units at a unit price of 120 yuan and sent them to the Moscow office. Now it is shipping them out at the market price of 550 yuan per unit, making nearly 4 times the profit. He joked that this is different from dealers who resell computing power. The overseas market requires early and long-term layout, and the cost and resources required are not small. You have to look far ahead and dare to take risks.

Under the epidemic, everyone is thinking about and looking for a way out. The operating mines have hardly been affected compared with production and sales.

Before being interviewed by Chain Catcher, Bo He had just returned from the mine. She joked that she was there to chat with her operation and maintenance colleagues. "We have new machines on the shelves after the New Year, and most of our operation and maintenance colleagues did not take a break during the Spring Festival. It was very hard. Although the epidemic has not affected us yet, I still chat with them frequently, show concern and condolences regularly, and also comfort them."

The picture shows the new machine in the Qimiao mine

China’s mining farms account for 70% of the world’s total, mainly concentrated in Inner Mongolia, Xinjiang, Yunnan, Sichuan, Gansu and other places. They are generally located in remote areas with sparse population and limited personnel mobility. Except for mining farms that need to use machines and mining farms where most of the operation and maintenance personnel are on vacation, the others are running smoothly. Miner Lao Chen said that compared with the price of coins, the impact of the epidemic on mining farms is relatively small.

However, Jiang Zhuoer said on Weibo a few days ago that the situation on the front line of the mines is very bad, transportation and supplies are cut off in various places, people cannot move, and companies cannot resume work. The situation in Xinjiang is the most exaggerated, and people entering Xinjiang need to be quarantined for 20 days.

F2Pool COO also revealed in a live broadcast of Lieyun Finance that some mining farms were directly shut down and the operation and maintenance personnel were dismissed, while some places only had people leaving but no one coming in, which was an overreaction. According to his calculations, if there were no epidemic, the time between the holiday and the holiday would be only 20 days different, but now it is very likely that the new machine will be postponed until March. This is bad news for miners who want to enter the market or make additional investments now, but there is still cloud computing power to consider, or directly invest in the secondary market.

In fact, apart from the situations mentioned by the two industry KOLs above, the development of mining farms will not fluctuate much in the short term and can be maintained stable. However, under the epidemic, the stock market has fallen sharply at the beginning of the year, and the rising trend of Bitcoin may continue to attract the attention of external fund holders.

But as an early participant, Bohe does not want Bitcoin to go viral in this way, because in her opinion, the explosion of financial technology products such as Bitcoin, blockchain, and digital assets will only be meaningful when people truly recognize their role. Otherwise, it will just be speculation again and again.

A senior industry insider believes that the mining industry will be built around computing power in the future, and the extension of computing power may break the structural ceiling of the industry and transform speculators into real users. He said, "Mining farms are the basic support. Conservative development can support a company to drive employment. Aggressive development can combine computing power products to do finance, or transform into data centers. In the future, it can also try to meet the data needs of smart cities. Mining pools are core targets that require long-term layout of miners and mining farms, because the mining industry needs to create an outlet that can continuously generate users."

Although the epidemic has brought endless internal and external problems to the mining industry, it is also a good time to reflect. After all, whether it is the mining industry or the blockchain industry, or even all walks of life, we should learn from history and take the epidemic as a warning to think about survival and evolution under various uncontrollable variables in the future.

(At the request of the interviewees, Lu Yuan and Ling Yan are pseudonyms in this article)