BTC mining difficulty hits a new high. Are miners optimistic about the halving and continue to increase their investment? Or are they in a dilemma?

At 5 a.m. on January 2, 2020, Bitcoin completed the latest mining difficulty adjustment at the blockchain height of 610848. The latest difficulty was raised to 13.80T, which is 6.57% higher than 14 days ago, on December 20, setting a ten-year high.

▲Source: BTC.com

If the halving does not materialize...

On October 26, 2019, the price of Bitcoin fell after reaching a high of $10,325, and fell to a low of $6,435 on December 18. Since then, the media and the cryptocurrency community have begun to show widespread anxiety and worry. Will the halving market exist? Will Bitcoin fall back to $3,000? Will miners surrender? These questions have been widely discussed.

Among them, the issue of miner capitulation is particularly prominent. This view holds that when the price of Bitcoin continues to fall and falls below the cost line of miners mining Bitcoin, miners will first sell Bitcoin and finally be forced to shut down. This situation will first appear in the small and medium-sized miners with low mining efficiency and high costs.

Currently, the price of Bitcoin is $7,100. According to incomplete statistics, the average mining cost of Bitcoin is currently $6,000, which means that one Bitcoin still has a profit of about 14%.

However, assuming that Bitcoin continues to maintain this price until May 2020, when the third halving occurs, if the mining cost remains unchanged, the revenue will be only about $3,500 after a 50% discount, which will be far lower than the mining cost of most miners. This means that most miners will definitely shut down and surrender.

Assuming that Bitcoin falls below $7,000 again, and then accelerates to fall below the previous low of $6,433 and then continues to decline, the consequences will be even worse. The official website of Biyin shows that the shutdown price of the Shenma mining machine M20S 68T version is about $3,416 at 0.38 yuan per kilowatt-hour, which is already ranked among the top five "artifacts", but at the end of 2018, the price of Bitcoin fell to a lower $3,155 .

Bitcoin mining difficulty hits new high, is this inevitable?

However, judging from the changes in Bitcoin mining difficulty, in 2019, Bitcoin experienced 26 difficulty adjustments, of which 7 were negative and 19 were positive. The mining difficulty was 5.62T on January 1, 2019, and 12.95T on December 20, 2019, with an increase of about 130% throughout the year. The computing power increased from about 40E at the beginning of the year to about 100E at the end of the year.

Does this mean that even though Bitcoin is currently fluctuating between $6,500 and $7,800, miners are still expressing through their actions that they are optimistic about Bitcoin's future price performance and continue to put mining machines online to push up computing power?

Pan Zhibiao, founder and CEO of Biyin Mining Pool, told Babbitt that there is a 2-3 month delivery cycle for futures mining machines. The current increase in computing power indicates that the computing power of the previous three months has just been released, and the recent computing power growth should be relatively slow. However, Pan Zhibiao also said that some miners are optimistic and continue to invest in small amounts.

According to Yu Yang from the Mining Association, the increase in computing power also comes from a number of new mines coming online, which requires more mining machines. In addition, there are the new mining machines that Pan Zhibiao mentioned.

In addition, the current market is not very optimistic, and mining machine manufacturers will also choose to send unsold machines to mines.

The above three situations are all passive increases in computing power. Does this mean that the computing power growth behind the two recent difficulty increases is a bit "inevitable"? After all, just three months ago, the price of Bitcoin was still $10,000, and market sentiment was high. The sudden cooling was somewhat unexpected.

▲Bitcoin price chart (from QKL123)

Bitcoin halving is coming, mining industry is showing its magic

Xu Wei is a big Bitcoin miner. I asked him if he was super optimistic about the halving. He said, "Not optimistic." However, his current strategy is to continue to buy low-power machines in large quantities. "Our machines are low-cost, and the electricity price is low. We are looking at the long term. We hope that the price of the currency will fall again, and those who enter the market will choose to wait and see. Then we can mine more. We don't consider how much it costs to shut down the machine. We care about the output ." Obviously, there is no such thing as "miner surrender" for him.

Finally, he advised me to mortgage coins to buy mining machines, because most people are pessimistic, which is a good time to enter the market. "Just do it, buddy." This sentence made me smile, which is very true of the mining circle.

After the interview, I also found that even though there are still about 5 months to go before the halving, miners are still upgrading their old mining machines to new ones.

Yu Yang's strategy is also very interesting. He said that he currently mainly holds high-power mining machines because he wants to recover the investment before the halving cycle. He believes that if he cannot recover the investment before the halving cycle, he might as well buy the coins directly. After the halving, even if the price of Bitcoin is "not beautiful", he can still make a profit based on his electricity costs.

But he is obviously more pessimistic about the halving market. He said that most miners do not have many strategies. Mining accidents are bound to happen and they are terrible. It’s just that everyone is betting that it will not happen to them.

In the recent AMA of Chain Node, Pan Zhibiao said that miners will use hedging, options and other financial tools to deal with extreme situations, but Bitcoin mining has never been a business that is guaranteed to make money. Assuming that the price of Bitcoin does not rise after the halving, some miners will have problems with their capital chain, which is inevitable. But he also said: " Hold it, the most difficult time is just like this, there will be no surrender, but the investment income will be worse, so don't over-invest."

Shao Jianliang, general manager of Canaan Creative Blockchain, does not believe that a super mining accident will happen. He believes that it must be a game between some smart miners and some miners who lack perseverance .

It can be seen that Bitcoin mining has become quite diverse and complex, and different players are gradually stratifying and differentiating. But at present, it is not a very pessimistic moment, after all, the shoe has not yet dropped.

▲Bitcoin revenue per ton chart (from QKL123)

I have to say that 2020 may be difficult. If we look at the revenue per terabyte of computing power, this data has been declining over the past decade. Today, the daily revenue per terabyte is around RMB 1. Taking the Shenma mining machine M20S as an example, its 68T version has a daily revenue of about RMB 68. At a cost of RMB 0.38 per kilowatt-hour, its net profit is RMB 32 (electricity costs account for about 38%). Calculated at the current price of about RMB 9,000 for the machine (previously, the price of the machine could reach RMB 20,000), its current payback period is 281 days. This is indeed inferior to the peak mining machine. This is not the ideal "coin circle speed", but what kind of investment can have a payback period of 281 days?