Xiao Lei: The real top player has entered the market, and the blockchain industry is about to change dramatically

The story I am going to tell today is absolutely wonderful.

On April 16, the U.S. Department of Commerce announced on its website that U.S. companies would be prohibited from exporting any technology or products to ZTE for seven years. How serious is this ban? ZTE Chairman Yin Yimin later said that the ban put the company into a state of shock.

The matter is actually very simple. As a multinational company that provides communication equipment all over the world, 99% of the core components of its products rely on imports from the United States. If these components cannot arrive in time, ZTE's business will face paralysis, which is what its chairman calls shock.

So what are the components that ZTE relies heavily on imports?

There is a number that may be scary. Last year, China imported a total of 337 billion integrated circuits (also called chips), spending a total of $260 billion (China's trade surplus with the United States in 2017 was only $275.8 billion). We can make another comparison. As the world's largest automobile consumer, China's total automobile imports in 2017 were only $78.1 billion, less than one-third of the total imports of integrated circuits.

Domestic chips have become the focus of Chinese public opinion and also a pain point for the rise of a great power.

However, for a country like China, the ability to solve problems cannot be ignored. We once completed the "two bombs and one satellite" under a strong economic blockade. So what is a small chip?

Unlike in the past, this time China's approach to solving the chip problem was far beyond market expectations. China did not set up a high-profile government-led fund to give money to extremely inefficient state-owned enterprises to make them focus on chip research and development. Instead, it chose a surprising path.

This has to start with the blockchain digital currency market.

Since the birth of Bitcoin in 2009, the digital currency market has attracted worldwide attention. China introduced very strict regulatory policies in 2013 and last year, but this did not affect the development of the digital currency market. Last year, the largest commodity futures exchange in the United States listed Bitcoin futures, and Japan began to issue licenses to digital currency exchanges.

China has a strong power in the digital currency market. One of the reasons is that the Chinese market has already mastered the computing power of the world's mainstream digital currencies. For example, more than 80% of the new production of Bitcoin is in China. However, Chinese mining farms do not have the right to maintain and develop the Bitcoin code. This core power is always in the hands of the US market.

Due to disagreements with the Bitcoin core development team, Bitcoin Cash (BCH), a Bitcoin fork led by Chinese miners, was born in August last year. The current market value of this currency has exceeded 160 billion yuan, ranking fourth in the global digital currency field.

These things originally had nothing to do with ZTE being banned by the United States, but since the mining of digital currency is done by mining machines, the core components of mining machines are also chips.

Pay attention, the fun is about to begin.

If the entire Chinese chip market is subject to the US export ban, the only way for China to obtain chips seems to be the digital currency mining industry, which is currently in a gray area. There are many ways to break through the blockade in this field. In addition, from a market perspective, apart from companies such as Huawei and ZTE, the largest demand for chips may be China's major digital currency mines. Several major Chinese mining machine manufacturers are developing their own chips, and have achieved some success.

Thus, an unknown strategy was implemented.

We saw that on April 17, the United States issued a ban on ZTE. Starting the next day, BCH, a digital currency dominated by Chinese digital currency miners, began to soar. As of now, in just seven days, BCH has soared by more than 70%, almost a one-time increase.

Please note that many investors may say that other digital currencies are rising during this period, and the rise of BCH is not surprising. In fact, if you look closely, the rise of other hot digital currencies such as EOS started as early as the end of March, and it has been intermittent, not a one-time rise. The turning point of BCH was coincidentally on April 17, and then it rose all at once.

There may be two reasons, some people have known some news, or some people have obviously started to support Chinese mining farms.

Sure enough, two days later, on April 21, CCTV1 reported on Bitmain, China's largest digital currency mining machine manufacturer, in its main program "Evening News". The content of the report was to tout the chips developed by Bitmain in the field of artificial intelligence.

On April 23, the People's Bank of China took the opportunity of an inter-ministerial joint meeting to release the following news: "At present, the ICO platforms and virtual currency trading venues such as Bitcoin that have been surveyed nationwide have basically achieved risk-free exit." I think this news is very important. On the one hand, from a regulatory perspective, it is believed that the market no longer has too much risk, and all kinds of activities in this market are acceptable. On the other hand, the government may have to intervene in this market to some extent to guide enterprises, but in order to reduce public discussion, it can only affirm the role of past policies and recognize the rationality of the current market.

On April 24, yesterday, Jiang Yang, vice chairman of the China Securities Regulatory Commission, led a delegation to visit Canaan Creative, the world's second largest bitcoin mining chip manufacturer (a Chinese company). You can listen carefully to what Jiang Yang said, "No matter what your chips are used for, you are essentially a chip company. I hope you will be listed in China."

You have to know that a few months ago, China was still trying to figure out the situation and preparing to shut down mining farms, and mining machine manufacturers were trembling with fear. Canaan Creative was worrying about going public and was preparing to move to Hong Kong, when suddenly such good news fell from the sky, and the vice chairman of the China Securities Regulatory Commission came to support it in person. Happiness came too suddenly.

What is the reason?

Chips, chips, and chips. Only with strong profit drive can private enterprises have enough motivation to develop related technologies. So where are the companies with the highest profits in chip-related industries? It happens to be the digital currency mining industry. Bitmain has an annual income of billions of dollars, while ZTE's net income last year was not even a fraction of Bitmain's. If Bitmain and others can invest more in chip research and development, it will be something worth looking forward to and encouraging.

With the government's involvement, especially the domestic chip plan, it may have been upgraded to a national strategy in a certain sense. This means that market-oriented enterprises related to chips, especially the digital currency mining industry, have become part of the national strategy and will serve the national will in the future. After earning so much, it is time to make some contribution to the country.

It is sad that who would have thought that the solution to the legality of China's digital currency mining and other fields was actually driven by the US ban on ZTE. It seems to be accidental, but if you think about it carefully, it is actually an inevitable accident, because the future competition is the competition of computing power.

In addition, regarding this round of digital currency market issues, I recorded a course as early as February. The analysis in the course was that bottom fishing cannot be based on price, but on time period. I think the bottom can be fished in late March or early April. Now it seems that my prediction has come true again. Friends who are interested can go and listen to it again.

Finally, regarding the chip issue, the digital currency industry will undergo major changes. The new strategic layout of some countries, mining machines and chips are just the beginning. The larger digital currency game between countries will gradually begin, and China may already have more specific plans. I will talk to you about it when I have the chance.

Text/Xiao Lei

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