If the price of Bitcoin does not rise after the 2020 halving, will a super mining accident occur?

More and more people are concerned about whether there will be mining accidents after the Bitcoin halving in 2020. Many self-media and big Vs in the blockchain industry have written articles to express their opinions, among which the following Weibo post is a representative one:

Regarding the mining industry’s big bet on the halving, I made some simple calculations:

At present, the total network computing power is about 95E. According to the report of Planet Daily, the monthly increase in computing power of Ant Group is stable at about 5E, and the new computing power of Samsung camp (Shenzhen, Xin, Jia) should not be lower than this number. Based on this estimate, the computing power will increase sharply at a rate of 10E+/month in the next few months, and before the halving next year (mid-May), the computing power will reach a record 140-150E.

The current BTC price is $7,200. If this price is maintained until the halving, it means that the total revenue of the mining industry will return to the level of $3,600 (7,200/2) at the beginning of the year after the halving.

Looking back at the beginning of the year when the price of the coin was $3,600, the hashrate of the entire network had been hovering in the 40E-45E range, and miners were barely surviving. If the halving occurs at 140-150E/7,200 dollars, an unprecedented super-giant mining disaster will surely break out.

Because by then it will not be a matter of S9 shutting down, but the entire line of mining machines, including flagship models such as S17Pro and M20S will reach the shutdown coin price.

In the history of BTC, this level of mining disaster has never happened before...

The entire mining industry is really gambling that there will be a halving. If the halving fails to happen as expected, the miners will face a Thanos situation - half of the miners will be wiped out in an instant.

"To be or not to be, that is the question..."

Response from Zhikuang University:

The editor has also received many private messages from friends about whether a mining accident will occur. The editor's views are as follows:

To predict whether a mining accident will occur in 2020, we need to first clarify the following issues:

01

What is the correlation between hashrate and Bitcoin price?

1. The growth of computing power is not determined by the production capacity of mining machine manufacturers, but by the purchasing power of miners.

On the one hand, mining machines are industrial products, and industrial products with market demand will be mass-produced. Over time, there will be no bottleneck in the production capacity of mining machines. The manufacturing of mining machines is already very mature, and the top few domestic mining machine manufacturers have very strong mass production capabilities, forming a pattern of competition among the heroes.

On the other hand, mining machines are essentially a financial product. Mining is a "tragedy of the commons" model. The output that can be distributed to miners across the network is fixed. On average, one block is mined every 10 minutes. Before the next halving, the entire network will produce 1,800 bitcoins per day. Miners are in a dynamic game, and computing power will eventually be concentrated in the hands of miners with cost advantages, and the input-output ratio will be in a reasonable range.

Back to the Weibo post mentioned at the beginning of the article, if the price of the currency stops rising or even falls, the income from mining will shrink significantly, and some miners who do not have cost advantages will even start to lose money. The mood of miners will change from greed and recklessness to caution, or even panic. The computing power will not continue to rise significantly, and large-scale mining accidents will not occur.

Mining is a free market without policy macro-control intervention. The dynamic game among all participants will effectively regulate the market and form a self-regulating cycle.

The trend of currency prices affects mining income, mining income affects miners' mood, miners' mood determines market demand, market demand in turn influences the production scale of mining machine manufacturers, high-cost miners shut down, and low-cost miners' income increases as a result.

The growth of computing power comes from the demand side, that is, the willingness of miners to buy. When the price of Bitcoin is low, the profit effect is not obvious or even loss-making, the willingness of miners to buy mining machines decreases, and high-cost miners are the first to exit and sell mining machines.

In fact, you can also observe the growth of computing power in the past month. Starting from mid-October, the computing power began to decline, and in November the computing power remained basically balanced and did not continue to increase.

▲2019 computing power growth curve

2. Changes in computing power lag behind changes in coin prices

Contrary to what many people imagine, changes in computing power lag behind changes in coin prices. The decisive factor in changes in computing power is whether miners make money from mining, but price is not the only factor. Miners who are patient and have cost and cash flow advantages will increase their computing power if they are optimistic about the future market. Even if the coin price falls, the overall computing power will still increase.

For example: When the price of Bitcoin began to fall from its high point in December 2017, the computing power continued to grow several times until the price of Bitcoin reached US$6,600 in October 2018.

▲The price of the currency fell, but the computing power continued to rise

02
If the price of the currency does not rise, how much computing power will the entire network have before the halving?

If the price of the currency does not rise, the computing power before halving will be basically the same as the current computing power, maintaining at around 90E.

It is an extremely wrong algorithm to use the current shipping capacity of mining machine manufacturers and the current total network computing power together to estimate the total computing power at the time of halving.

Currently, about 40E of the total network computing power is contributed by S9 and below mining machines. If the price of the currency falls further, the S9 and other machines that are on the verge of shutting down will be forced to shut down. New mining machines with better performance will continue to enter the market. In this process, mining machines with poor performance and high power consumption ratio will be gradually eliminated. Mining machines complete "metabolism" in this process, and the cost of shutting down mining machines is reduced.

On the other hand, the time when the block reward is halved basically coincides with the flood season. If the coin price remains unchanged, a 40% drop in electricity prices (from 0.4 to 0.24) will largely offset the impact of the halving on mining machines.

Therefore, as new machines enter the market, old machines are gradually phased out, and cheap electricity prices during the flood season alleviate the impact of the halving effect, so the computing power of the entire network basically remains at the current level.

03
Where will S9 go?

Currently, the focus of mining accidents is basically on the S9 mining machine.

If the price of Bitcoin does not rise after the halving, the S9 will definitely be shut down. Will the shut down S9 be out of business? How should miners who own S9 mining machines deal with these machines?

There are still about 5 months before the halving. The current price of S9 is around 400 yuan. Most retail investors are selling S9. Most of the S9s that dare to take over S9s in the market are large miners with cost advantages. Large miners can get cheap electricity prices and have their own mining farms. Large miners can continue to mine by taking over S9 mining machines at very low prices. If the price of the currency falls further, the S9 can be packaged and sealed, and can be restarted after the market improves or the flood season arrives next year. If a bull market starts during the halving, with the electricity price during the flood season, the low-cost S9 may pay back in 1-2 months. For large miners, this is a very good investment. Just like the S9 that was bought at the bottom at the end of 2018, it paid back in less than two months after the currency price rose.

The electricity fee is calculated at 0.24 yuan per kWh. Under the current mining difficulty, after the Bitcoin halving, the shutdown price of the new machine is very low, and it is almost impossible to shut down, but the payback period will be longer.

▲The shutdown coin price of different mining machines

04
Your poison is his medicine

If the price of Bitcoin does not rise after the output is halved, all current S9 and below machines will basically be shut down, and the payback period for new machines will basically be more than two years.

The price of mining machines is closely related to the payback period. By then, the price of mining machines may fall to half of the current price, and the mining machines on the secondary market may fall below the cost price. For miners who have no cash flow pressure and have cost advantages, this is an excellent investment window. In this window, the mining machines are exchanged and flow to people who can make better use of resources:

1. Those who recognize the value of Bitcoin, are optimistic about its future performance and have the ability to buy at the bottom will buy mining machines and digital assets at the bottom;
2. Miners who lack confidence in the future market, have cash flow pressure and no cost advantage will sell their mining machines

When both parties complete the resource exchange and the market is reshuffled, Bitcoin will enter a unilateral bull market.

05
Summarize

If the price of Bitcoin does not rise after the halving, the mining industry will indeed suffer a severe blow, but there will definitely not be a super-large-scale mining accident as mentioned in the blog post quoted at the beginning of the article.

Mining machines are essentially a kind of financial product. Mining is a free market, and the game between participants will effectively regulate the market:

1. Mining revenues decline, the payback period becomes very long, miners’ demand weakens, and computing power stops increasing;

2. Mining machines will complete a wave of "metabolism", high-performance new mining machines will enter the market, and low-performance mining machines will be gradually eliminated.

3. Mining machine manufacturers’ shipments far exceed demand, and may face financial crisis;

4. As the price of coins continues to fall, mining machines, especially old ones, will flow from high-cost miners to low-cost miners, completing a reshuffle.

5. The market has emerged from the downturn and entered a bull market.

When you are confused, you might as well think about: Why is Bitcoin valuable? Why are there bull markets and bear markets? What is the logic supporting the rise of Bitcoin?

When the bull market comes, the best thing is: people are there and the currency is there!