Miners are betting big on the halving, is a super mining disaster coming?

At the end of October, BTC briefly returned to the $10,000 level due to good news, but it failed to reverse the overall downward trend. BTC once fell below $7,000, close to the shutdown price of some old mining machines. Some people say that "2019 is the worst period that BTC miners have experienced in recent years" and that halving will cause super mining accidents. Is this really the case?

Introduction

At the end of October, BTC briefly returned to the $10,000 level due to good news, but it failed to reverse the overall downward trend. BTC once fell below $7,000, close to the shutdown price of some old mining machines. Some people say that "2019 is the worst period that BTC miners have experienced in recent years" and that halving will cause super mining accidents. Is this really the case?

summary

Special topic: Super mining disaster is coming? From June to November 2019, the average monthly increase in BTC network computing power was about 10EH/s. The mass production of a new generation of high-performance mining machines before the production cut in 2020 may continue to drive the network computing power up to 120EH/s, increasing the cost of miners by at least 150% after the production cut. At that time, the shutdown price of the current mainstream mining machines will reach US$9,000. However, BTC computing power is limited by the constraints of physics (mining machines), energy (electricity), and cost (coin price). "Mining disasters" are just the natural elimination process of high-energy-consuming mining machines by the market economy. After the halving, it will enter the flood season, and the electricity costs of miners will also decrease.

Market: Volume reduction and consolidation, consolidation of the bottom. This week, the ChaiNext Digital Asset 100 Index closed at 646.80 points, down 3.28%. The ChaiNext Digital Asset 100X Index closed at 1645.93 points, down 2.21%. This week, the total market value of digital tokens was US$198.51 billion, a decrease of about 4.5%; the average daily trading volume was US$56.85 billion, a decrease of 6.6%. BTC is currently priced at US$7269.7, a weekly decrease of 3.7%, and the average daily trading volume is US$17.1 billion. ETH is currently priced at US$144.9, a weekly decrease of 2.8%, and the average daily trading volume is US$6.88 billion. This week, the BTC balance of the exchange was 834,400, an increase of 6,700 from last week. The ETH balance of the exchange was 8.643 million, an increase of 150,000 from last week. In the BICS secondary industry, the number of operating platforms and market value have dropped significantly.

Output and popularity: Both computing power and popularity have slightly decreased. The mining difficulty of BTC this week is 12.88T, which has not been adjusted this week; the average daily computing power is 92.9EH/s, down 1.32EH/s; the mining difficulty of ETH is 2621.8, up 129.4; the average daily computing power is 173.9TH/S, down 0.7TH/S.

Industry: Countries around the world are actively developing central bank DCs. Shenzhen Futian District will accelerate the construction of the country's first digital currency building; the European Central Bank will set up a special committee for central bank digital currencies; Deloitte: In 2019, executives of large companies will have an increased interest in blockchain; the South Korean government may impose taxes on virtual currencies.

Risk warning: regulatory policy risk, market trend risk

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1 Special topic: Miners are betting big on the halving trend, is a super mining disaster coming?

1.1 Cold market, hot mining field

At the end of October, BTC briefly returned to $10,000 due to good news, but it failed to reverse the overall downward trend. Since November, the price of BTC has been falling, and at the end of November it fell below $7,000, hitting a low point in nearly half a year. Affected by the country's strict investigation of illegal digital token trading activities, some exchanges have removed non-compliant tokens, causing investors to worry about the "zero wave".

Not only is the domestic market environment cold, but the BTC dollar trading volume in the overseas market has also declined to a certain extent. As the 2020 BTC production reduction time node approaches step by step, there is no sign that BTC will get out of the downturn in the short term. However, the second half of 2019 is undoubtedly the most crazy period for BTC miners to compete in computing power. Since June, the BTC network computing power has exceeded the previous high of 57EH/s in 2018. In five months, the network computing power has increased by more than 80% again, even exceeding 100EH/s, setting a daily computing power record of 109EH/s.

The coldness of the BTC market is in stark contrast to the hot computing power. The BTC price once fell below $7,000, close to the shutdown price of some old mining machines. People realized the similarities with the mining disaster a year ago, and some media wrote that "2019 is the worst period that BTC miners have experienced in recent years", but what's worse is that when the BTC block reward is halved, the electricity cost of miners will double.

Some people believe that if the halving happens as expected and BTC continues to maintain a price of $7,000, it may trigger an unprecedented super mining disaster, and most mining machines will become scrap metal. The entire mining industry is like using real money to "gamble" on the halving.

1.2 A new generation of mining machines is coming, and the computing power of the entire network may increase dramatically

From June to November 2019, the average monthly increase in BTC network computing power was about 10EH/s. The surge in digital tokens in the first half of the year has led to a resurgence of capital in the mining industry. Major mining machine manufacturers are also rushing to launch new products. At the Global Digital Mining Summit in October 2019, Bitmain released a new Antminer S17+, which can mine SHA256 algorithm encrypted tokens including BTC and BCH. The computing power of S17+ reaches 73TH/s, the power consumption is only 2920W, the energy consumption ratio is 40W/T, and the daily electricity bill is only 16.6 yuan (calculated at an electricity price of 0.35 yuan/kWh). The energy consumption ratio of old machines such as Ant S9 and S9i, which are still in high demand, is 2.5 times that of S17+, that is, 100W/T. The shutdown price has reached US$6,000 just by calculating the electricity bill. Bitmain's competitors, such as the Ebit E11++ developed by Ebang International, the Avalon A1166 developed by Canaan Creative, and the Shenma M20S developed by Shenma Mining Machine, are all within 50W/T, and their shutdown prices are still below US$3,000.

The update and iteration of mining machines coincides with the upgrade of chip manufacturing process. Currently, most of the mid-to-high-end mining machines on the market use 7nm or 8nm chips. According to sources, Shenma M30S, the latest generation of 8nm mining machines of Shenma Miner, has recently been successfully taped out by Samsung and is currently in the wafer verification stage. It is expected to start mass production in January-February 2020, and its energy consumption ratio will reach 38W/T. Bitmain's next-generation 7nm mining machine Antminer S19 has also been sent to TSMC for wafer production, with an energy consumption ratio of up to 30W/T.

The mass production of a new generation of high-performance mining machines before the production cut in 2020 may continue to drive the increase in the total network computing power. In the past month, the growth of BTC's total network computing power has slowed down, maintaining between 90 and 100EH/s, but after the mass production of new mining machines in 2020, the total network computing power may continue to grow by 10EH/s per month until the production cut. Considering the withdrawal of some old mining machines, the total network computing power may reach about 120EH/s by then.

After the production cut, the cost of miners will increase by at least 150%. A self-media article said, "At the beginning of the year, when the total network computing power was 40EH/s and the BTC price was $3,600, miners were struggling to survive. If BTC is halved again when the total network computing power is 140-150EH/s and the price is $7,200, an unprecedented super-giant mining disaster will surely break out." Although the computing power may not increase so rapidly, according to a conservative estimate of 120EH/s computing power, the electricity cost for miners to mine one BTC after the production cut will increase by more than 150% compared to the current level.

1.3 After halving, the shutdown price will reach $9,000. Only the fittest will survive

Jiang Zhuoer, founder of Litecoin Mining Pool, expressed different opinions on the view of "halving mining difficulty". He pointed out that BTC computing power is restricted by three factors: physics (mining machine), energy (electricity), and cost (coin price). The entry and exit of computing power is the result of comprehensive game of various aspects. In the future, the computing power of the whole network will stabilize in a more reasonable profit balance range, rather than maintaining high-speed growth. High-performance mining machines can still support a certain range of fluctuations in coin prices. Jiang Zhuoer believes that this is also the natural law of mining development and a normal response to supply and demand, not a "gamble".

The cost of miners after the reduction can also be roughly estimated. BTC will begin its third halving at block height 630,000, with a block reward of 12.5 and a daily output of about 1,800 coins. The current block height of BTC is 608,100. According to an average of one block every 10 minutes, BTC will halve its block reward in 152 days, around May 15, 2020, with daily output reduced to 900 coins and annual inflation rate reduced to 1.8%. If the BTC price remains at around $7,200. Then the daily mining reward is about $6.48 million. According to the calculation power of 120EH/s, the theoretical mining income per T calculation power per day is $0.054.

According to a study by Cambridge University on electricity consumption and costs of BTC mining, in addition to electricity bills, miners' costs also include hardware depreciation, bandwidth, site fees, labor costs, insurance, etc. It is estimated that electricity bills account for about 75% of the total costs.

Assuming that the energy consumption ratio of mainstream mining machines during the halving is 50W/THs of the current Antminer S17, each terabyte of computing power consumes 1.2 kWh of electricity per day. Based on an electricity price of RMB 0.3 and a 75% electricity cost-to-cost ratio, the daily mining cost of 1T computing power after the halving is about $0.068, and only when the BTC price rises to $9,000 can it make a profit. If the BTC price continues to remain sluggish, only mining machines with an energy consumption ratio of less than 40W/THs can remain powered on, which is bound to cause large-scale mining machine shutdowns, which is no less serious than the mining disaster in November 2018.

As shown in the figure below, the red shadow indicates the current mining cost range of a single BTC. Currently, the BTC price has entered the shutdown price of some mining machines, and miners may face a difficult situation similar to that at the end of 2018.

People in the mining industry are optimistic about the future development of the mining industry. With the continuous development of the blockchain industry, digital tokens will play an important role in future development. As BTC is "digital gold", the consensus will definitely become higher and higher, and the price has a certain imagination space. The future development direction of the mining industry may be based on the operational capabilities of electricity and computing power, providing a basic guarantee for the application of blockchain technology in various fields. The so-called "mining disaster" is just the natural elimination process of high-energy-consuming mining machines by the market economy, and considering that the flood season is about to begin after the halving, the electricity cost of miners will also decrease.

2 Market: Volume reduction and consolidation, bottom consolidation

2.1 Overall market: Volume reduction and callback

This week, the ChaiNext Digital Asset 100 Index closed at 646.80 points, down 3.28%. The ChaiNext Digital Asset 100X (without BTC) Index closed at 1645.93 points, down 2.21%. BTC fell back with reduced volume, and mainstream tokens performed slightly stronger.

The total market value of digital tokens this week was US$198.51 billion, a decrease of US$9.25 billion from last week, a drop of approximately 4.5%.

This week, the average daily trading volume of digital tokens was $56.85 billion, down 6.6% from last week, and the average daily turnover rate was 28.0%, down 1.8% from last week. This week, BTC fell back to its previous low of $7,000, consolidating its bottom.

This week, the BTC balance of exchanges was 834,400, an increase of 6,700 from last week. The ETH balance of exchanges was 8,643,000, an increase of 150,000 from last week. The BTC and ETH balances of exchanges rose slightly, and the selling pressure in the market increased slightly, which was unfavorable for the price to rise.

The market value of USDT is US$4.115 billion, a decrease of US$6.88 million from last week, mainly due to the decline in USDT premium.

2.2 Core Token: Linked to BTC Callback

The current price of BTC is 7269.7 USD, with a weekly decline of 3.7% and a monthly decline of 17.5%. This week, the average daily trading volume of BTC is 17.1 billion USD, and the average daily turnover rate is 12.8%. The trading volume of BTC has declined to a certain extent, and the volume is shrinking and consolidating.

The current price of ETH is $144.9, down 2.8% this week and 23.0% this month. This week, the average daily trading volume of ETH is $6.88 billion, and the average daily turnover rate is 43.0%. The trend of ETH is slightly stronger than that of BTC, and the mainstream tokens have basically reached the short-term bottom.

The current price of EOS is $2.63, down 4.0% this week and 24.2% this month. This week, the average daily trading volume of EOS is $1.32 billion, and the average daily turnover rate is 53.0%. The trend of EOS is weak, and the trading volume has fallen sharply.

XRP is currently priced at $0.22, down 2.1% this week and 19.1% this month. This week, the average daily trading volume of XRP is $1.18 billion, with an average daily turnover rate of 12.1%. XRP is linked to BTC.

The volatility of major tokens showed a downward trend this week. The monthly volatility of BTC was 12.5%, down 1.4% from last week; the monthly volatility of ETH was 15.3%, down 0.2% from last week. The volatility of mainstream tokens decreased, and the market activity was low.

2.3 BICS industry: operating platforms declined sharply

Among the top five BICS (Blockchain Industry Classification Standard) secondary industries by market value, the number of operating platform industries has dropped significantly, from 90 to 80. From the perspective of the change rate of market value share, the market value share of professional services and retail e-commerce has grown at a higher rate, while the market value share of non-bank financial services has declined significantly.

The BICS secondary industries with the most obvious growth in the number of tokens this week were professional services, retail e-commerce and project services, while the number of operating platforms decreased significantly.

2.4 Market View: The bottom needs to be formed in despair

BTC has repeatedly risen and fallen, indicating that although the market is willing to go long, the upper resistance is heavy and difficult to break through. Both the long and short sides need time to gather strength again, and the market is expected to continue to fluctuate. The market heat has cooled down, and the trading volume has declined. It is necessary to exchange time for space. The bottom is often formed when most people are desperate. At this stage, investors should be cautious in using leverage or handing over chips.

BTC can be gradually increased at low levels. In the long run, high-quality tokens have a large room for imagination. The halving market will start in 2020, and the callback is a rare opportunity to increase positions. Investors can make good asset allocation based on their own situation.

3 Output and popularity: Hashrate and popularity declined slightly

The computing power of BTC and ETH has slightly decreased. The mining difficulty of BTC this week is 12.88T, which has not been adjusted this week; the average daily computing power this week is 92.9EH/s, which is 1.32EH/s lower than last week; the mining difficulty of ETH this week is 2621.8, which is 129.4 higher than last week, and the average daily computing power is 173.9TH/S, which is 0.7TH/S lower than last week.

This week, Google Trends statistics show that the search popularity of Bitcoin is 8, and the search popularity of Ethereum is 6, which is a decrease compared to last week.

4 Industry News: Countries around the world are actively developing central bank DCs

4.1 Shenzhen Futian District will accelerate the construction of the country's first digital currency building

Shenzhen's construction of a pilot demonstration zone for socialism with Chinese characteristics has entered a new stage of full implementation. After several months of research, the "Action Plan for Shenzhen to Build a Pilot Demonstration Zone for Socialism with Chinese Characteristics (2019-2025)" was officially issued in early December and distributed to relevant departments of Shenzhen. The "Action Plan" proposes that Futian District will build a digital financial pilot demonstration zone, accelerate the construction of digital financial carriers such as the country's first digital currency building and the country's first credit building, and build a digital financial pilot demonstration zone with legal digital currency research and development and personal credit system construction as the core, covering the entire industrial chain. Take the lead in building a cross-border financial pilot demonstration zone. Actively strive to build a big data center and a big data trading platform in the Greater Bay Area to provide support for financial innovation and technological innovation.

4.2 The European Central Bank will set up a special committee on central bank digital currency

ECB President Christine Lagarde said that the ECB has set up a special committee on central bank digital currency. It is expected to obtain results on digital currency in mid-2020. She expressed her personal opinion that the ECB's digital currency should maintain its leading edge.

4.3 Deloitte: Executives of large companies show increased interest in blockchain in 2019

In 2019, Deloitte conducted a survey on the views of executives of large organizations on blockchain. The data showed that interest in blockchain-based technology is generally increasing. Deloitte's annual survey surveyed 1,386 executives from large companies from 12 countries and regions (including China, the United States, Japan, etc.), and 83% of the participants responded that they have seen compelling use cases for blockchain, an increase of 9% over last year; 77% of executives believe that they will lose their competitive advantage if they do not adopt blockchain technology, which was 68% in 2018; and 53% responded that blockchain technology has become a key priority for their respective organizations this year, an increase of 10% over last year.

4.4 The South Korean government may impose taxes on virtual currencies

South Korean government officials revealed that the South Korean government is trying to impose capital gains tax on virtual currency income, and relevant regulations may be reflected in the tax law next year. At the same time, the National Assembly is also passing a bill to increase the transparency of virtual asset transactions.

Notes:

Due to some reasons, some of the terms in this article are not very accurate, such as: token, digital token, digital currency, currency, token, Crowdsale, etc. If readers have any questions, please call or write to discuss.

For the original report, please see the research report released by [Tongzhengtong Research]: "Miners gamble on the halving market, super mining disaster is coming? ——Blockchain Weekly 191215"