A batch of Bitcoin mining machine shops in Huaqiangbei have been replaced, and the good news of blockchain has not boosted the mining machine market

Reporter of Meijing: Liu Ling Editor of Meijing: Wei Guanhong

The blockchain industry has ushered in a new wave of enthusiasm, and virtual currencies have also soared. Among them, the price of Bitcoin once soared to $10,000, and the entire currency circle was in a carnival. The direct beneficiaries of the surge in virtual currencies are the mining machines linked to them. At the end of 2017, the price of Bitcoin broke through the historical peak of $20,000, and the mining machine industry continued to stage a myth of wealth creation. Bitmain, the largest mining machine manufacturer in China, made more than 19 billion yuan in 2017 just by "selling mining machines", which is on par with chip giant Nvidia. However, since March 2018, Bitcoin has plummeted one after another, which once plunged the mining machine industry into a cold winter.

Recently, a reporter from the Daily Economic News once again visited Huaqiangbei SEG Plaza, the world's largest mining machine distribution center. Unlike what the reporter saw when he first visited in early 2018, the mining machine shops in SEG Plaza have long been replaced. The good news about blockchain does not seem to bring much warmth to the sluggish mining machine market. "Blockchain is not equal to Bitcoin. Although the price of the currency has risen, the increase of more than 2,000 US dollars is not enough to 'save the market' for the mining machine industry." Chen Chen (pseudonym), the owner of a mining machine shop, told reporters.

In addition, according to reports from Babbitt and other media, the industry generally expects that the third Bitcoin halving will take place around May 19, 2020, when the difficulty of mining will further increase. The previous generation of small-computing-power mining machines may face permanent elimination, and 70% of the mining machines will be eliminated.

"Seamless connection" between exit and entry

The end of 2017 was the most prosperous time for the entire Huaqiangbei mining machine industry. The skyrocketing price of Bitcoin made mining machines the most profitable business in Huaqiangbei. Mining machine dealers flocked to the market, scrambling for stall resources, and merchants who originally sold computers, mobile phones and other electronic products also switched to selling mining machines in an attempt to get a piece of the pie. For a time, more than half of the merchants in the entire SEG Plaza were selling mining machines.

January 2018 was the first time for the reporter to visit SEG Plaza. Although the price of Bitcoin has fallen, the mining machine business is still booming. The couriers of Deppon Logistics pull out trailers full of mining machines one by one. Merchants from all over the world shuttle between the mining machine stalls, looking at the goods, negotiating prices, and placing orders... Some shops won orders worth millions of yuan in just ten minutes.

The 4th floor of SEG Plaza is the floor with the most mining machine shops. Next to the escalator on the 4th floor, a mining machine dealer took over this stall in an excellent location in 2017. At that time, its sales manager Chen Wen (pseudonym) told the reporter of "Daily Economic News" that the store area was about 15 square meters and the annual rent was nearly 180,000 yuan. However, SEG Plaza has a "bundled sales" rule for mining machine stalls with good geographical locations: to contract a conspicuous advertising space in the market, an additional advertising fee of more than 100,000 yuan per year must be paid. Based on this calculation, the annual rental cost of the stall is nearly 300,000 yuan.

"When the mining machine business is good, this is nothing." Li Dali (pseudonym), the owner of a mining machine shop on the 4th floor of SEG Plaza, told reporters. He said that when the market is good, one mining machine can make a few thousand yuan, and an order of 100 units can make more than 100,000 yuan. The rental cost of 300,000 yuan is only a few days' profit.

However, since February 2018, with the continuous emergence of negative news such as the strengthening of global regulation of virtual currencies, the prices of virtual currencies, led by Bitcoin, have plummeted one after another. The mining machine industry has also entered a cold winter, with mining machine sales shrinking severely and mining machine prices falling again and again, even falling below the cost price at one point.

The 300,000 yuan rent is no longer a "small matter" for mining machine dealers. In September 2018, the lease of the mining machine shop where salesman Chen Wen worked expired, and the boss decided to withdraw the counter. For them, the mining machine business can still be conducted online, but Huaqiangbei, where the flow of people is dwindling, is no longer their "must-fight place". After the counter was withdrawn, Chen Wen and several other sales staff were arranged by the boss to go to Xinjiang to manage the mine. Some sales staff also chose to leave the company and go out to work alone with their own customer resources.

On October 28, 2019, a reporter from the Daily Economic News once again visited SEG Plaza in Huaqiangbei. There were still many mining machine shops on the 4th and 5th floors, but the mining machine shops that the reporter was familiar with were no longer there, and the giant advertisements on the pillars were replaced with the names of other mining companies, some of which sold mining machines, and some provided mining farm hosting.

Liu Yong (pseudonym), who once owned a mining machine shop on the 5th floor of SEG Plaza, told reporters that due to the decline in mining machine sales and high rental costs, more than a dozen mining machine shops on the 4th floor of SEG Plaza left the market one after another in the second half of 2018. While the previous batch of mining machine dealers left the market and the outside world was pessimistic about the mining machine industry, a group of new mining machine dealers still entered the Huaqiangbei SEG Market at the end of 2018. Leaving and entering the market are almost seamless.

Previously, Liu Yong's shop was located at the elevator entrance on the 5th floor. He only vacated it at the beginning of this year. He was the last mining machine dealer to move out of SEG Plaza in 2017. The one who took over Liu Yong's shop was also a mining machine dealer. "They are optimistic about the long-term development of Bitcoin and are waiting for the next wave of market. This is their plan. I just want to get a transfer fee in the end and then leave."

Blockchain benefits are not enough to save the market

Since late October, the good news about blockchain has driven a surge in related concept stocks and virtual currencies. Data shows that as of 9:00 a.m. on October 26, more than 90% of the top 100 digital currencies by market value rose by more than 15%, and more than 15 varieties rose by more than 30%. Among them, Bitcoin's increase once exceeded 40%, and the price broke through the $10,000 mark.

Even so, SEG Plaza in Huaqiangbei is still deserted. New mining machine dealers who entered the market when the mining machine market was sluggish seem to have not yet waited for what they call the "next wave of market conditions."

The reporter of Daily Economic News observed for several hours in SEG Plaza. Not many people came to the mining machine shops to inquire. Occasionally, a few Russians passed by, but they just took a business card, added WeChat and left. The shop owners sat on the stools at the stalls, playing with their phones with their heads down, and no longer stood in front of the counter to solicit business as before.

"Blockchain technology will have a huge market, but blockchain is not equal to Bitcoin. Bitcoin is just an application of blockchain." Chen Chen (pseudonym), the owner of a mining machine shop, told reporters, "So, you see, after the good news about blockchain came out, the price of Bitcoin rose for three days (from the 25th to the 27th), and after breaking through $10,000, it fell back to around $9,000, which is more than $2,000 higher than before the good news came out."

Chen Chen said that although the price of Bitcoin has risen, the price of mining machines linked to Bitcoin has rebounded, but for the mining machine industry, the increase of more than 2,000 US dollars is not enough to "save the market", and the industry is in a wait-and-see state. If there is a market like the second half of 2017, and Bitcoin continues to soar, then the demand for mining machines will be instantly ignited.

A Cheng, a salesperson at a mining machine shop on the 5th floor of SEG Plaza, gave an example to reporters that the price of the Shenma M20s (68T) mining machine was more than 15,000 yuan a few days ago. After the good news came out, the price rose to about 17,000 yuan. However, the order price of this mining machine is about 15,800 yuan to 16,300 yuan. In other words, before the good news came out, they basically lost money by selling mining machines.

"The mining machine market is very depressed. So far, the overall market situation is that everyone is losing money. Sichuan is about to enter the dry season, and a large number of second-hand mining machines with low computing power are flooding into the market. In addition, mining machines from major manufacturers have been shipped one after another, and each mining company has a lot of mining machines in stock. Now that good news has come out, the price of mining machines has risen, and various shops are selling off their goods." Liu Yong told reporters.

Liu Yong also said that, for example, a mining machine priced at 10,000 yuan would drop by 100 to 200 yuan a day before good news came out. After the good news came out, it only temporarily stabilized the market and would not let the price of mining machines continue to fall. However, there are many mining machines at present, but few people buy them, and many people are not optimistic about them. "I also have mining machines in my hands, and I am selling them at a loss."

70% of mining machines will face Bitcoin halving crisis

When visiting SEG Plaza, a reporter from the Daily Economic News said that he wanted to build a mine in Russia to mine coins. A Cheng, a mining machine salesperson, recommended a batch of second-hand Antminer S9 (14T) to the reporter. People who are familiar with the mining machine industry will not be unfamiliar with it. Antminer S9 (hereinafter referred to as S9) was once called the "king of machines" and has always been popular in the market. At the end of 2017, the price of each Antminer S9 was as high as 30,000 yuan, but now it only costs more than 1,000 yuan, and a second-hand one only costs 750 yuan.

"Electricity is cheap in Russia. If you do it yourself, S9 can mine about 17.6 yuan of bitcoins a day. The electricity cost is calculated at 7 cents per kilowatt-hour, which means it costs about 2.5 yuan a day, which means you can earn about 15 yuan a day." Ah Cheng calculated quickly on the calculator. "Each second-hand S9 costs 750 yuan, and the profit is 15 yuan. With the logistics and labor costs, you can get your money back in half a year. If it is in China, the current daily profit of S9 is only 4 yuan."

After learning that the reporter was recommended a second-hand S9, Liu Yong shook his head repeatedly. "In May next year, the number of bitcoins will be halved, and mining machines with low computing power (more than 10 TB) will be eliminated, including S9. When the price of bitcoin is 60,000 yuan, an S9 can make 15 yuan a day after deducting electricity costs, but if bitcoin is halved and the difficulty of mining increases, it may not make money at the same price of 60,000 yuan."

According to a recent report from Caijing.com, the latest shutdown coin price table shows that based on the current difficulty, when the comprehensive electricity fee is calculated at 0.35 yuan/kWh and the coin price is 8,000 US dollars, the four mining machines, namely, Shenma M3, Avalon A741, Ebit E9+ and Ant T9+, have reached the shutdown coin price, while S9 is even closer to the shutdown coin price.

In fact, the computing power and mining difficulty of the Bitcoin network have been growing in one direction since December 2018. Since March this year, major mining machine manufacturers Bitmain, Canaan Creative, Innosilicon and MicroBit have successively produced and sold high-computing mining machines, totaling more than 500,000 units, directly pushing up the computing power of the entire network. According to BTC.com data, on October 24 this year, the mining difficulty reached 13.69T, and it is expected that the difficulty will increase by 4.65% to 14.33T in 13 days.

In addition, it has become a consensus that Bitcoin will be halved next year. The reporter learned that the 18 millionth Bitcoin has been "mined" and only 3 million Bitcoins are left to be "mined". The industry generally expects that the third Bitcoin halving will be around May 19, 2020, when the mining difficulty will be further increased, and the previous generation of mining machines may face permanent elimination.

Crypto analyst Tone Vays has also said that technically, it is unlikely that the price of Bitcoin will be below $5,000 until the end of 2020. The worst-case scenario is that as Bitcoin halves, the price falls to $5,000, 70% of mining machines shut down due to negative income, and the price of Bitcoin spirals down before coming back to life.

"In the past few years, mining machine manufacturers have produced small-computing mining machines with a computing power of more than ten terabytes. There are hundreds of thousands of S9s in the world, not including Shenma. This batch of machines was released at the peak period in 2017, and a lot of them have been sold in recent years. Although many mining machine manufacturers released some mining machines with a capacity of more than 20 terabytes in 2018, not many people bought them because the market was at a low point. The mining machines with a computing power of 50 to 60 terabytes released in March and April this year were not sold in large quantities. Therefore, most of the mining machines currently running in the mines are still low-computing." Liu Yong told reporters, "70% of the mining machines will be eliminated, this data is about the same."

In the context of Bitcoin's possible halving next year, in addition to the elimination of the previous generation of low-computing mining machines, the mining revenue cycle will also be extended. Take Shenma M20S (68T) as an example. Its current market price is about 16,000 yuan. Although the power consumption is low (48W/T), due to the high cost of mining machines and the increased difficulty of mining, it will take longer for the mining revenue and electricity savings to recover the cost. The fact that the actual future revenue is far away is the biggest reason why the market is taking a wait-and-see attitude towards mining machines.

Daily Economic News