Second-hand mining machine trading business

In November, various regions issued relevant investigation policies, and Bitcoin fell below $7,000, entering a downturn. The mining industry, located in the upstream of the blockchain industry, seems to be cooling down. The exaggerated saying that second-hand mining machines are sold by the pound has reappeared. Some people in the market are selling a lot, and some are waiting for opportunities to hoard. This time, Chain Catcher will focus on relevant practitioners, trying to spy on the real situation of this business. (Note: The deadline for this article is November 26.)

Buyers in one second, sellers in the next, only miners are their unified title, and the mining machines that produce BTC are the core subject of the transaction. Whether they are dealers, mine owners, professional salesmen, or front-line miners, in the second-hand mining machine trading, their identities are freely changed due to the influence of factors such as the scale of their own mines, currency prices, electricity prices, policies, halving, machine iterations, etc. (In this article, mining machines that are not directly produced by manufacturers are generally referred to as second-hand mining machines.)

This is a business where newcomers fall into traps, acquaintances make profits by reselling, and it is highly dependent on the price of the currency.

01

Market conditions dominated by coin prices

Whatsminer M20S, computing power 68T, power consumption 48W, special 12XXX. Lu Yuan, a salesman of Dafa Mining in Huaqiangbei, Shenzhen, was selling it in WeChat Moments a week ago, when BTC was hovering above $8,000.

In recent days, BTC has been fluctuating around 7,000 US dollars, and the price of the same model is around 100 million. Not only that, the prices of other models are all decreasing. All models are based on the quotation of the day. When the BTC price rises, the machine price will rise, and vice versa.

"The market is not good. All models are losing money. Sales have to chase after customers and run advertisements frequently. The commission is not given according to the previously agreed 30%. Now the commission for selling an old mining machine is 10-15 yuan, and the commission for selling a new mining machine is 50-100 yuan." Lu Yuan said it was too difficult.

Chain Catcher also found in the interview that, in addition to Lu Yuan, many sales claimed that their companies were located in Shenzhen Huaqiangbei SEG Plaza, which was once regarded as the world's largest mining machine distribution center. However, since the industry's trough in 2018, the past glory has gradually disappeared, and many shops have turned mining machine sales into part-time jobs, while others have embarked on the path of professional mining machine traders.

Although sales are not going well, Lu Yuan is still optimistic about the industry. He told Chain Catcher that the industry has such a low tide every year. Now it seems to be losing money, but his own mine is continuously producing coins, and he will still make money if he sells them when the market is good.

"In some countries, electricity prices are low, and in some countries, customers are capable of modifying mining machines. Small-power models like T9+ and L3+, which cannot be run immediately in China, are still selling well in foreign markets. However, the new machine market is mainly concentrated in China. With the current market conditions, we can sell a machine that costs 10,000 yuan for around 8,000 yuan. We can make a small loss, but we will make it back quickly when the bull market comes." Lu Yuan said confidently.

The living conditions of sellers are relatively poor, but the onlookers are ready to take action. Strictly speaking, some people have already started to act.

02

Business with acquaintances, trap with strangers

"Wait a minute, there is something going on at the mine, I'll take care of it first." In the early morning, Yang Dong received a call from a colleague who was in charge of the mining machine launch and temporarily interrupted the interview.

Two weeks ago, he bought 3,500 Shenma M21S/56T mining machines from a large miner at an average price of 10,000 yuan per unit, and is currently handling the custody matters. These machines are all new, and the seller is an acquaintance of Yang Dong. The futures were ordered from Bitmain a few months ago, but were sold due to capital turnover problems.

Yang Dong is the head of an investment fund. He started investing in mining in 2017 and later invested in several projects in the ICO wave. This year is his second foray into the mining industry. "There are fewer and fewer investment targets in traditional industries, and the annualized return rarely exceeds 20%. Mining can reach about 40%, which is currently a relatively high-yield investment target and is still very attractive to investment institutions." This is his original intention for entering the industry for the second time.

This time, Yang Dong found a mining farm in Sichuan through a friend, where the electricity price was very low. When he was interviewed by Chain Catcher, he was leading his team to arrange matters related to the listing of mining machines.

"You have to personally monitor the mining machine launch." Yang Dong said that from the purchase of mining machines to the launch, it takes multiple steps such as model selection, quality inspection, transportation, launch debugging, and later operation and maintenance. If you are not careful, you will fall into traps. For retail investors who have no acquaintances, the industry barriers are high, the challenges are greater, and there are more traps.

Chain Catcher contacted several sellers on a second-hand mining machine trading platform called Caiyun Bit as a retail investor. During the communication, most of the sellers said they had mining farms and suggested that they buy the machines and then directly host them. The hosting fee mainly includes electricity and operation and maintenance fees, with electricity prices ranging from 0.34 to 0.4. Some sellers said they only charge electricity fees and operation and maintenance is free.

In this regard, Lao Chen, a miner who is familiar with the business of second-hand mining machines, told Chain Catcher, "This is equivalent to selling computing power in disguise. For buyers, it is not cost-effective and safe. If you are not familiar with the seller, you will most likely be cheated out of nothing, and your investment will basically be lost. Even if you get some, it may not be in full because the stability of electricity, the continuity and integrity of computing power cannot be guaranteed, so the authenticity of the return cannot be verified."

He also revealed that most online guarantee platforms are for private individuals to sell second-hand mining machines. They lack authority and basically have no after-sales service. The guarantee is just a gimmick and cannot actually guarantee the seller's credit. It is better to buy from a trusted acquaintance, which is relatively reliable. However, even if you buy from an acquaintance, you must do your homework in advance, and consider the machine technology, power consumption ratio, and static/dynamic payback period to avoid paying an IQ tax.

Currently, the buyers of second-hand mining machines mainly include mining farms with redundant electricity resources, experienced miners and novice miners.

Among them, mining farms mainly purchase cheap old mining machines to fill redundant electricity; experienced miners, most of whom have cheap electricity resources and independent judgment on the market, purchase second-hand mining machines mostly to stock up and wait for the bull market to come to sell them for profit.

Most of the new miners are laymen who heard that mining is profitable and want to give it a try. However, since they generally do not have enough knowledge about machine models, quality, hosting and other aspects, the chance of falling into a trap is very high. "Not long ago, a relative from my hometown found a seller on QQ. The price was the lowest on the entire network. He bought more than 100 second-hand mining machines at a low price. After the goods arrived, he found that 40 of them were damaged. He went to the seller to protect his rights, but the seller said that the goods were good and asked him to find logistics. In this case, he could only admit defeat." Lao Chen's tone was mixed with helplessness.

In fact, in addition to the lack of after-sales service for damaged machines, there are also situations where there is no replacement if the model does not match, no delivery due to temporary price increase, and the subsequent hosting may also face problems such as computing power being stolen.

The existence of these pitfalls is the direct reason why the second-hand mining machine trading is niche.

03

Retail players driven out by scale

Lao Chen is not only a senior miner, but also managed mines for others. When he was at his peak, he was responsible for the startup and operation of the entire mine. He led a 50-person operation and maintenance team to manage nearly 40,000 mining machines, which produced more than 6,000 bitcoins in total. From mine construction, technology procurement, operation and maintenance personnel training, maintaining computing power stability, negotiating cooperation with mining pools, to the appreciation of revenue coins, Lao Chen has a clear understanding of the entire process.

After 4 years in the mining industry, going through both bull and bear markets, he has now chosen to transform.

Not long ago, Lao Chen joined a quantitative fund team as a grid trader, and mining gradually became a sideline. "The mining industry is too dependent on the price of coins. If there is a big fluctuation, the mining machine may face shutdown, and the income is very unstable, especially for retail miners like me, who have limited financial resources and cannot withstand big fluctuations. Now the national policy is so tight that I simply can't afford to continue mining." He sighed.

As he was familiar with the second-hand mining machine market, Lao Chen also had the idea of ​​reselling second-hand mining machines to make some money. However, due to the high stocking costs and the difficulty of storage and supervision, he gave up. He said, "The market is not good, and it is easy to lose money. If I don't stock up, I can't meet customer needs in time. It's better to trade in cryptocurrencies to save trouble."

In fact, Lao Chen's transformation has, to some extent, exposed the current living conditions of retail miners in the mining circle. When the market is good, they are full of motivation, but when the market is bad, they have to face the dual pressure of funds and psychology. Not only that, they also have to consider many uncertain factors such as halving, policies, electricity prices, currency prices, machine iterations, etc., which is very laborious and may not make any money.

On the contrary, large-scale institutions with sufficient funds and extensive connections appear to be more competitive because they have the ability to withstand the above-mentioned risks and the strength to compete for computing power, the core competitiveness of the mining industry.

"Have you bought new machines?" a colleague asked in the elevator. "Not yet! We'll talk some time." Xiao An walked out of the elevator and headed for the fund company where he worked. There are many investment funds in this building, and most of them have invested in mining. As Yang Dong said, the annualized return on mining will attract many investment funds to enter the market.

The company where Xiao An works entered the blockchain industry in 2017 and was once immersed in the ICO wave, which was full of exciting stories and wealth that seemed within reach.

However, after a brief revelry, the Bitcoin market bottomed out at $3,000. Some people could not bear it and left the market, while others quietly bought at the bottom. "Although it was not as rumored that second-hand mining machines were sold by the pound, the market was indeed very bearish at the time, and buyers had bargaining power. We not only bought 10,000 second-hand mining machines with an investment of more than 5 million, but also bought at the bottom of a wave of Bitcoin. When the market rebounded in the middle of the year, we sold some Bitcoin and mining machines and made about 4 times the profit."

When buying second-hand mining machines at the bottom, Xiao An did a lot of homework. Like Yang Dong, he bought them through acquaintances. The quality and power consumption of the machines were almost the same as described by the seller. "Although the price will be slightly higher when buying through acquaintances, money is not earned by one person. It is important to learn to expand your social circle while doing business. After all, doing business is inseparable from human relations." He said frankly.

However, some minor incidents occurred during the hosting, such as shutdown caused by power outage or unstable power in the mining farm, and computing power being secretly cut off by operation and maintenance personnel. Fortunately, there are a large number of mining machines and the entire scale is large, so these small losses are attributed to friction costs and can be ignored.

Just imagine, if such an incident happened to a retail miner, the impact would inevitably be magnified, and the so-called friction cost could cause a small miner to go bankrupt.

On the contrary, institutional miners can hold on. This may be the power of capital. It seems that only it can get a share of the mining industry where computing power demand is increasing. Perhaps the mining industry is being capitalized, or it will soon become a capital industry.

Xiao An revealed that many listed companies and investment institutions have been planning mining businesses for a long time, but they have not publicized them externally. Institutional miners have become a trend, and the survival of retail miners is indeed worrying.

It is true that the buying and selling of second-hand mining machines is a profitable business and will continue to attract investors in the future, but the above signs also indicate that this will not be a valuable business in the future, because almost no one can see its value beyond the output of Bitcoin.

"The price of the machine has dropped again. Are you still planning to buy it? Our boss will give you a discount if you buy more than 10 units!" After sending this message, salesperson Lu Yuan opened the WeChat Moments of this customer who had not yet made a deal and silently clicked the "like" button. At this time, a new round of price war among peers has quietly arrived again.

(At the request of the interviewees, Lu Yuan, Yang Dong, and Xiao An in this article are all pseudonyms)

This article is from "Chain Catcher".