Mining machine production cuts to clear inventory, Bitcoin miners may have a chance to buy at the bottom

Now is the stage where chip giants are clearing their inventories, and the computing power will remain stable in the second half of the year; unlike the speculators who chase the rise and fall of the currency, miners with stable profitability are facing the opportunity to "buy at the bottom"

Bitcoin mining machine manufacturer Bitmain plans to submit an initial public offering application to the Hong Kong Stock Exchange at the end of August and will be listed by the end of 2018 with a valuation of $35 billion. ChainDD previously reported "Seizing the growth potential of AI chips, the battle of mining machine manufacturers", Canaan Creative, Ebang Technology and Bitmain have successively IPOed or are using high valuations to get out of the bear market as soon as possible.

Behind these unicorns are the miners who poured in during the bull market. However, in the past six months, they have been troubled by factors such as reduced production capacity of mining machine manufacturers, frequent plunges in Bitcoin prices, continued intensification of computing power competition, and unstable domestic regulatory environment.

In the bear market, mining business is not doing well

In the Bitcoin mining industry chain, mining machine manufacturers are at the core, with miners, mining farms and multi-level distributors operating around them. The development of the entire industry has benefited from the surge in Bitcoin prices. After entering the second half of 2017, Bitcoin has been on a six-month-long carnival. At the end of December, it once reached $20,000. The continuous rise in the price of the currency directly boosted the sales of mining machines.

Take Canaan Creative for example. The factory price of around 3,500 yuan was once hyped up to 20,000 to 30,000 yuan per unit. The instantaneous change in the price of the currency directly affects the payback period of the mining machine, which has also spawned the futures business of mining machines, and the mainstream mining machines are in short supply.

However, in 2018, the digital currency entered a bear market after the carnival. In the past six months, Bitcoin has experienced small ups and downs, but it is difficult to hide the overall "cliff-like" decline. As of July 31, the price of Bitcoin fell below $8,000 again. At the end of June, the price of Bitcoin once fell below $6,000.

Affected by the dual influence of currency prices and computing power, miners have recently been selling cryptocurrencies frequently to cover the costs of mining. Data from Cryptocomposite.com shows that the amount of cryptocurrencies sold by miners has exceeded the amount mined.

According to Charlie Morris, the head of the site's development team, in recent days, miners have sold about $10 million in inventory, an amount less than their daily revenue. Despite the recent rebound in the cryptocurrency market, mining companies' profit margins have narrowed, causing some miners to leave the mining market.

Fengwo co-founder Lin Nianlong told the ChainDD author that the decline in coin prices and the iterative upgrade of computing power will increase the mining yield by 6-8 times. In the bear market, the mining business seems to be getting harder and harder to do.

Miners struggle to survive amid regulation

What makes miners panic is the regulation from the state. On January 2, 2018, the Leading Group of the Internet Financial Risk Special Rectification Office issued a document requiring all localities to guide enterprises under their jurisdiction to orderly withdraw from the "mining" business. The notice pointed out that while "mining" enterprises consume a lot of resources, they also fuel the trend of "virtual currency" investment speculation.

According to Caijing, people close to the central bank said that Bitcoin mining is "firstly, it is risky, and secondly, it squeezes the real economy. The attitude of supervision is definitely negative, and the ultimate idea is to hope that it disappears, rather than regulate it, because it has no necessity to exist and is not a useful industry."

An analysis report provided by Cambridge University shows that China accounts for 71% of the global virtual currency mining pools. These mining pools are basically distributed in Sichuan, Yunnan, Guizhou, Xinjiang and Inner Mongolia, which are convenient for hydropower or wind power. The lower electricity cost is the main reason for the clustering of these miners.

(Global distribution of virtual currency mining sites)

Recently, a notice from the Xinjiang Uygur Autonomous Region Economic and Information Commission (EIS) circulated online stated that Xinjiang will clear out illegal virtual currency mining companies before the end of August.

It can be said that since the People's Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and other seven ministries and commissions jointly called a halt to ICO on September 4 last year, the country has taken action again this year to clean up and regulate the virtual currency mining industry, which to a large extent reflects the country's attitude towards the disorderly development of virtual currency. Under the pressure of supervision, cost and market conditions, miners have come up with the idea of ​​"going overseas".

The vitality of computing power games

The PoW mechanism determines that Bitcoin mining is a computing power game. Miners try their best to obtain more computing units and greater computing power. Having computing power means having absolute say. For example, in addition to selling mining machines, Bitmain also owns two major mining pools, Antpool and BTC.com, which account for nearly 30% of the global Bitcoin network computing power.

According to Satoshi Nakamoto's original setting, from the creation of the first block in January 2009, each block was rewarded with 50 bitcoins, and then the output was halved every 210,000 blockchains (about 4 years). In November 2012, it was halved to 25 bitcoins for each block, and then in July 2016 it was halved to 12.5 bitcoins for each new block.

Based on this consensus, the Bitcoin mining reward will gradually decrease until all Bitcoins (21 million) are issued in 2140. By that time, the only thing miners can collect is the transaction fee for recording blocks.

The cost advantage of being the first mover and the attractive price of Bitcoin have attracted miners to rush in within a short period of time. As of July 31, 17 million Bitcoins have been mined, and 4 million remain, which means that less than 20% of the Bitcoins are left to be mined. Since the birth of Bitcoin in 2009, the computing power of the entire network has increased by 30 billion times.

The total amount is limited, and computing power has increased. In addition to centralizing the mining machines in mining farms, miners are also constantly purchasing mining machines with higher computing power.

(Bitcoin mining calculation difficulty; unit: T)

Liande Note: The computing power of the entire Bitcoin network has fully entered the P computing power era (1P=1024T, 1T=1024G, 1G=1024M, 1M=1024k). In the environment of soaring computing power, the arrival of the P era means that Bitcoin has entered a new arms race stage.

On July 31, Canaan Creative's Avalon new 7nm A9 series Bitcoin mining machine was launched, with a computing power of up to 30T. What does this mean? Let's do some calculations: Assuming the price of A9 is 5,000 yuan, the electricity fee is 0.5 yuan, the daily net profit is 44.21 yuan, and the payback period takes 114 days. The payback period of Antminer S9J takes 242 days. But in the ideal market environment last year, Bitcoin mining only took 60 days to pay back.

(Benefit comparison: Avalon A9 VS Ant S9J)

Therefore, the technical iteration of mining machines is an important factor in solving the problem of low-power mining for miners. In the chip industry, 7nm chip production has become the core competitiveness of semiconductor giants. However, the payback period is only a theoretical calculation of days. Factors such as Bitcoin market, computing power difficulty, and mining pool commissions are constantly changing, making it difficult to calculate an accurate payback period.

Lin Nianlong of Honeycomb said to the author of ChainDD: "In a bull market, what matters is the production capacity, while in a bear market, what matters is the power consumption ratio."

For a mining machine, the two most important factors are computing power and power consumption. Imagine that a Bitcoin with a market price of $20,000 allows miners to ignore power consumption, and the non-stop operation of the mining machine allows them to continue to earn floating profits brought by the rising price of the currency. However, mining is different from the speculation of currency prices. What miners need to consider in a bear market is the conversion rate brought by power consumption.

Mainstream mining machine 1: [computing power] 13.5T, [power consumption] 1350W, [calculated] computing power per watt 10G/W.

Mainstream mining machine 2: [computing power] 12T, [power consumption] 2100W, [calculated] computing power per watt 5.85G/W.

The author of Liande.com contacted a second-tier mining machine dealer, who enthusiastically promoted their mining machines, "Which one do you want? We have both spot and futures, and buy one get one free!" He also sought mining farm hosting resources and Xinjiang power resources at a 0.3-cent electricity price.

Lin Nianlong said that there is no Matthew effect in mining. The ratio of one mining machine to ten mining machines of the same model is only "1:10". This is why we see the overall decline of Bitcoin prices while seeing the continuous increase in computing power.

Giants' orders were cut, but computing power remained stable

The chip industry is mainly divided into major links such as "design, manufacturing and packaging and testing", and most companies cannot afford the high cost of manufacturing chips. Therefore, companies such as Bitmain, Canaan Creative and Ebang Technology need to purchase foundry chips from chip companies such as NVIDIA, AMD, TSMC and Samsung Electronics.

However, as the demand for mining machines weakens, these giants are also cutting orders for mining machine chips. In mid-June, Wall Street brokerage Rosenblatt reported that Bitmain and Canaan Creative may cut orders to TSMC and Samsung Electronics due to the weakening demand for mining machines.

TSMC CEO Wei Zhejia said that the company's revenue growth this year will reach a high single-digit percentage (7%-9%), lower than the previous forecast of 10%. And lowered the revenue forecast for the third quarter. AMD's graphics card revenue fell by 3% in the second quarter, which was also affected by mining. It can be seen that the chip giant, whose profits have soared due to the demand for mining machine chips, has shown signs of fatigue as the industry cools down.

Lin Nianlong told the ChainDD author that TSMC received very few orders in the first half of the year, indicating that the shipments of mining machine manufacturers in the second half of the year were not large. Therefore, in the next period of time, the computing power of the entire virtual currency market will not increase significantly, which has no actual connection with the price of Bitcoin.

(Bitcoin candlestick chart for the past year (2017.08.01-2018.08.01); unit: US dollars)

(Chart of the total network computing power over the past year)

From the analysis of the figure, it can be concluded that the computing input of the entire network mining machine is what really affects the trend of computing power, and virtual currency plays the role of a catalyst in this. The rise in prices will promote the participation of more mining machines. Lin Nianlong admitted that retail investors still occupy the majority of the mining market, but unlike those who speculate in cryptocurrencies, mining is a continuous profit-making business, but there are some differences in the profit cycle.

Those who enter the market first will definitely make the most profit. However, for miners who missed the early bonus, entering the market at a low level is a good opportunity to "buy at the bottom".

Source: Liandede

Disclaimer: The content provided by the self-media is from the self-media, and the copyright belongs to the original author. Please contact the original author for permission if you want to reprint. The views of the article only represent the author himself, not Sina's position. If the content involves investment advice, it is for reference only and should not be used as an investment basis. Investment is risky, so be cautious when entering the market.

Editor-in-charge: Wu Huazhang