Investment Points
Event: On July 9, 2016, Bitcoin is expected to experience its second halving of mining output, from 25 bitcoins per block to 12.5. We know that when Satoshi Nakamoto designed the Bitcoin system, in order to control the overall issuance of Bitcoin (essentially simulating gold, due to the limited reserves of gold, the mining rate will become slower and slower, so Bitcoin is also called digital gold, and Bitcoin production is also commonly known as mining), he stipulated that after every 210,000 blocks, the output of Bitcoin would be halved. At first, each block produced 50 bitcoins, and then gradually halved until it approached zero. Since Bitcoin sets a difficulty coefficient based on computing power, it produces one block in about 10 minutes on average, so it is halved about every four years. According to this rule, Bitcoin will reach its set upper limit of 21 million by 2040.
Comments:
In the long run, the price of Bitcoin is positively correlated with computing power, and in the short and medium term, it is affected by market sentiment and event-driven factors. Based on an estimate of 12.5 Bitcoins per block, at the current price of around RMB 4,300, the total revenue that can be generated in one day is approximately RMB 13.16 million; in terms of cost, the electricity cost alone can be as high as RMB 6-7 million per day, plus the cost of purchasing mining machines and other expenses, the current profit of Bitcoin mining basically does not exceed RMB 3 million per day. We believe that due to the high concentration of the upstream mining industry, there is limited room for eliminating backward computing power in the future, and with the intensification of mining competition, computing power will gradually increase, and mining costs will be difficult to reduce in the long run. Based on this, we believe that Bitcoin is still bullish in the long run, while short-term fluctuations are more susceptible to emotions, funds and events.
As the Bitcoin industry matures and the number of mining coins is halved, the importance of blockchain as an underlying protocol has increased significantly. On the one hand, on July 9, 2016, the Bitcoin mining reward will be halved from the current 25 coins per block to 12.5 coins, and the mining reward continues to decline; on the other hand, the Bitcoin industry chain is maturing, and it has formed a complete industry chain of production, trading, storage and application. With the gradual increase in computing power, the cost of mining is also getting higher and higher. We believe that under the cost-benefit model, the Bitcoin market, especially the underlying mining, will continue to reshuffle, and the backward computing power will continue to be eliminated, leading to the gradual maturity of the industry. In the mid- and downstream trading and storage markets, the transaction share is currently relatively concentrated, and China's three major platforms account for 80% of the global transaction share. At the application level, we believe that more new models combined with blockchain technology will emerge, including derivative applications such as colored coins (smart contracts), side chains, and alliance chains. Investment and application of blockchain technology will become mainstream in the future.
Investment advice:
The blockchain industry chain mainly includes the development of the basic layer, the middle layer services and the specific application promotion at the application level. The application fields include finance, smart contracts, medical care and other fields. Since blockchain technology is not yet mature, and the commercial value of the basic layer and the middle layer is relatively weak compared to the application layer, venture capital at home and abroad currently focuses on the financial field at the application level. Combined with my country's actual situation, the current combination of financial IT and blockchain in my country is mainly reflected in the following two aspects: Payment and clearing: By using a decentralized payment and clearing process, the existing third-party payment intermediary is replaced. Typical representative companies in this part include Haili Meida, Feitian Chengxun, Shiji Information and Guangbo Shares.
Financial asset trading: By building a decentralized asset trading accounting platform, we can reduce the cost of asset trading or enter the field of financial asset trading that cannot be traded on exchanges (such as bills, supply chain finance, etc.). Typical representative companies in this area include Oma Electric, Hengsheng Electronics and Wintime.
Risk Warning:
1) Risk that blockchain technology application fails to meet expectations;
2) Risk of unclear business model;
3) Financial regulatory policy risks
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