Bitcoin's fortunes and misfortunes: the list of eliminated industries is deleted, the third halving will take place in May next year, and capital continues to gamble

Forex Eye News: In the early morning of December 17, Bitcoin fell below the $7,000 mark. Looking at the data displayed on the APP on his mobile phone, Xia Yong, the founder of Huilian, immediately called his friends in Xinjiang to inquire about the layout of the new mine and told them to speed up the progress and start construction before the Bitcoin halving in May next year.

"Every time there is a halving, Bitcoin will surge, and I believe this time will be the same!" said Xia Yong.

In fact, many investors engaged in mining (hereinafter referred to as miners) have seen the opportunity to get rich brought about by the halving of Bitcoin, just like Xia Yong.

However, at the time of the third halving, the computing power of the mining pool has doubled compared to last year, the investment in mining has also increased, capital has poured in rapidly, the iterative updates of mining machines and the continued sluggishness of Bitcoin prices have made miners experience a huge risk test: larger and stronger mining industries will be able to hold on, while weaker miners will be the first to fall into trouble, and either they will be eliminated or they can only wait for Bitcoin to recover in value as soon as possible.

More and more miners, higher costs

For miners, 2019 was a very difficult year, especially in the second half of the year when the price of Bitcoin continued to fall, making life very difficult for many small and medium-sized miners.

"Prince" (pseudonym) invested millions with his friends last year to set up a small mining farm in Yunnan and purchased hundreds of Ant S9i 13.5T mining machines, but now it can no longer sustain itself.

Prince did some calculations: each machine can mine 12-13 yuan per day, and with an electricity fee of 0.34 yuan, the electricity cost of each machine is 12.16 yuan per machine. After deducting the operation and maintenance costs, it is no longer profitable. "After more than a year of mining, the investment has been recovered. If I sell these machines, I can make a profit." Prince admitted that the mining industry is very complicated, and small miners like him can lose everything if they are not careful. "I'd better go back and do some small business."

In fact, since the second half of this year, with the sharp drop in Bitcoin prices and more and more capital pouring into the mining field, computing power has grown rapidly, causing mining costs to rise and profits to fall significantly.

Public data shows that at the end of June, Bitcoin hit a high of $13,929.8, but failed to maintain the upward trend in the first half of the year and has been slowly falling since then. In the early morning of December 17, Bitcoin fell below the $7,000 mark.

At the same time, the computing power of the entire network has not decreased, but has continued to rise. A reporter from Upstream News Chongqing Business Daily saw on the Binance APP that it has nearly doubled from about 50EH/s in the same period last year to 94.53EH/s (average value in the past two weeks). The data given by Innosilicon is more radical. They expect the computing power of the entire network to reach about 150EH/s by the end of this year.

What is the reason that more and more investors are entering the field of mining? According to data from CoinMarketcap.io, in 2018, the mining rewards received by Bitcoin miners reached $5.5 billion, of which $5.2 billion (about 97%) were newly mined Bitcoins. Xia Yong admitted that mining was definitely a way to get rich quickly in the past few years, which also attracted a lot of capital.

Faced with the current situation, Xia Yong believes that he can be more radical. "I have invested in a mining farm with my friends in Xinjiang, with an installed capacity of about 10 million. Including this mine, I now have 4, but I am still a small miner."

Xia Yong chose to increase his holdings because he believes that the price of Bitcoin will soar after the halving next year. The country’s current strong support for the blockchain industry also makes him full of confidence in the field of mining.

Not long ago, the National Development and Reform Commission issued the "Guidelines for Industrial Structure Adjustment (2019 Edition)", deleting virtual currency mining activities that were in the obsolete industries in the previous "Draft for Comments".

Xia Yong admitted that this change in attitude was unexpected for all the practitioners in the mining industry. For the mining industry, removing mining from the list of eliminated industries is a benefit comparable to the promotion of the national blockchain development policy on October 25 to the entire industry.

Big miners control the market, small and medium miners have a hard time surviving

Unlike people in the cryptocurrency circle, miners are relatively low-key. A reporter from Upstream News Chongqing Business Daily contacted a Chongqing miner named Lao Li (pseudonym) through a friend many times and finally found him. At that time, he was having dinner with people in the mine and discussing the matter of shutting down the mining machines.

Lao Li told the reporter from Upstream News and Chongqing Business Daily that in the first half of this year, he and three friends bought 800 second-hand mining machines at a price of more than 1,000 yuan per machine, and their daily income exceeded 10,000 yuan at the time.

“When the price of Bitcoin skyrocketed in the first half of the year, we expected it to take half a year to get our money back, but it only took one month,” said Lao Li.

However, as regulatory authorities in Shanghai, Shenzhen and other places have successively rectified the chaos of ICO and pyramid schemes in virtual currencies, multiple exchanges and coin issuance projects have been investigated, and the price of coins has continued to fall. Today's profit is only a few hundred yuan.

"We are about to enter the dry season, and electricity prices are bound to rise. If the price of the currency still doesn't go up, I will discuss shutting down the mine with the mine farm," said Lao Li.

The electricity price Lao Li got was relatively cheap. At present, the electricity price for mining machine hosting in mining farms in Xinjiang, Inner Mongolia, Sichuan, Yunnan and other places is generally 0.35~0.37 yuan. However, once the dry season comes, if the annual electricity price contract is not negotiated, losses will occur.

Lao Li admitted that this industry is very complicated and that losses are inevitable in a sluggish market. "My current mining machines are all managed by mining farms. Many small miners are also managed by mining farms, and their lifeblood (electricity) is controlled by the mining farms."

Industry insiders admit that the key to Bitcoin production is electricity. Mining consumes a lot of electricity. The more people mining, the more difficult it will be and the more electricity consumption will increase. In order to save the cost of laying lines and the convenience of electricity use, most Bitcoin mines are built directly in areas rich in hydropower. Xia Yong said that in the field of mining, if you have connections and can get cheap electricity, it is a sure-win business. "You can sell electricity or mine by yourself. The cost will be lower than that of your peers, and you will survive longer."

Xia Yong introduced that currently miners can be roughly divided into the following categories: the first category is early miners who started out with graphics card mining and have accumulated deep capital; the second category is powerful companies in the mining circle, such as Bitmain, MicroBT, Xindong and other major mining machine manufacturers and Litecoin Mining Pool, Bixin and strong mining companies; the third category comes from traditional industries and Internet giants; the fourth category is small and medium-sized miners with dozens to hundreds of mining machines.

In fact, individual miners and small and medium-sized miners usually need to purchase mining hardware equipment from other manufacturers, but large miners can order parts in bulk, and even buy electricity at a big discount, which gives them a huge competitive advantage. Eventually, small and medium-sized miners and individual miners will be delisted due to unprofitability, and large miners will have an increasing market share, making it easier for them to influence and control the market.

Xia Yong said that electricity costs, equipment efficiency, operational efficiency, as well as forecasts and expectations of future prices, are factors that come into play every day, making small and medium-sized miners "exhausted."

The market will generate demand for 1.5 million mining machines

Just as miners such as Xia Yong and Lao Li were racking their brains to plan for development, on the evening of November 21, Bitcoin mining machine manufacturer Canaan Creative went public on the Nasdaq, planning to raise US$90 million, far lower than the previously expected US$400 million.

On the first day of listing, Canaan Creative closed at $8.99, slightly lower than the IPO issue price ($9). But for the blockchain or mining machine industry, Canaan Creative's listing has a more special meaning: mining machines as infrastructure are the most important hardware in mining activities, equivalent to the money printing machine in the cryptocurrency world.

According to industry insiders, the main mining machine manufacturers in the world include Bitmain, Canaan Technology, Ebang International, MicroBit, etc. Among them, the market competition between Bitmain's Antminer and MicroBit's Shenma Miner is the most intense. Bitmain even resorted to market means such as installment payment, support for joint mining, and free options for large users to buy mining machines, in order to regain some market share through financial policies.

The third halving of computing power is coming, which has prompted miners and mining machine manufacturers to start planning. The most direct manifestation of the halving of computing power is the expectation of a surge in Bitcoin. Kong Jianping, co-chairman of Avalon Mining, said that the only obstacle for Bitcoin to break through $100,000 is time.

In addition, with the halving of Bitcoin, the upgrade and iteration of mining products has also been put on the agenda. Wang Shenglin, sales director of Innosilicon Technology, said that based on the shipment and mining field operation data, there are currently about 4.3 million mining machines in operation. However, with the increase in mining difficulty and the halving of output, the market will have a demand for 1.5 million mining machines.

Lao Li admitted that the halving of Bitcoin production in 2020 has led to a decrease in mining income, and the mining income of small computing power machines cannot compete with that of large computing power machines. If Bitcoin rises, he will consider talking to his partners and switching to a batch of large computing power mining machines to take another gamble. However, Lao Li also believes that the uncertainty of Bitcoin prices makes mining riskier.

Industry Outlook》》

The risk of high pressure from a unified national policy is not too high

On November 11, the website of the Department of Industry and Information Technology of the Inner Mongolia Autonomous Region once again issued the "Notice on the Joint Inspection of the Cleanup and Rectification of Virtual Currency "Mining" Enterprises" (hereinafter referred to as the "Inspection Notice"), requiring the autonomous region's joint inspection team to go to some leagues and cities to conduct a joint inspection of the cleanup and rectification of virtual currency mining enterprises. In addition, Xinjiang, Sichuan and other places are also very cautious.

Looking at the policy documents previously issued by various places, the regulatory authorities’ attitude towards the virtual currency and mining industries is not always consistent.

Although the National Development and Reform Commission has deleted virtual currency mining activities from the list of obsolete industries, local governments have not immediately changed their non-supportive attitude towards this industry.

Combined with the resurgence of blockchain, industry insiders are still optimistic about the development prospects of the virtual currency mining industry. Chen Lei, founder of Blue Whale Blockchain, said that since 2018, supervision has indeed tightened and become clearer. "At present, the risk of high pressure from a unified national policy on mining is not too high."

Lin Weihao, partner of Benrui Capital, said that after the relaxation of national supervision, the current virtual currency mining industry is showing a positive trend. Not only has the outside world's attention increased, but also large funds and talents are flowing in. He said that as long as the regulations are issued, more funds and institutions will intervene in the mining industry in the future through compliance, risk control, and regulatory channels, because it has a clear cash flow and the input-output ratio can be estimated.