It doesn't matter what the "surname" of Bitcoin is, it's important to be able to make money.
Written by: Wang Jiangyue
Foreword: The author has been in the Bitcoin mining industry for four years. In the Bitcoin mining industry and even the entire cryptocurrency circle, four years often means several ups and downs. This industry is like a rose with thorns, full of temptations and traps. Outside the industry, black swans and gray rhinos often remind us of the fragility of the encryption industry itself (yes, it is too vulnerable to macroeconomic and geopolitical influences). There is a famous saying in "Game of Thrones": Chaos is the ladder. Some people take profits out of the chaos, while others just take out chestnuts out of the fire and make wedding dresses for others. However, as long as the clouds bloom and the moon shines, before the new cycle comes, the author will write down what he has seen and gained after four years of immersion in the industry, so as to feed all practitioners who have faith and move forward.
Cyclical Phenomenon and Pseudo-"Decentralization" of Cryptocurrencies
When I first entered the industry, what impressed me the most was the ever-fluctuating curve of Bitcoin. Volatility and cycles are fundamental features of the cryptocurrency industry, with myriad tiny peaks and troughs charting price swings like an electrocardiogram (heartbeat, no doubt). While volatility tells us about instantaneous changes in investor supply, demand, and confidence in Bitcoin, cycles provide a historical perspective that charts repeating patterns in the industry. Given that the price of the currency is spiraling upwards in each cycle, the cycle itself has become a relatively optimistic expectation. Here, the author would like to rephrase what Keynes said. In the long run, someone will survive.
Valuing Bitcoin’s value is inseparable from the long-term narrative surrounding it. The roots of these narratives are all derived from the white paper published by Satoshi Nakamoto in 2009. It can be found that both the so-called "decentralization" (P2P technical practice) and digital gold as a safe-haven asset (Bitcoin's deflation mechanism) are based on a "technological" belief. However, it precisely ignores the role of human nature in the diffusion of technology.
Since the development of Bitcoin and its mining industry, the "decentralization" I see is a false proposition. The fact today is that as an upstream mining machine manufacturer, after undergoing multiple rounds of technological innovation and evolution, it has become highly centralized. Only Bitmain, Canaan, and Whatsmart accounted for more than 90% of the market share. %; the distribution of mining pools is also highly concentrated, with the top 5 mining pools controlling 90% of the world's computing power; this is especially true for exchanges, which are highly concentrated in Binance, Coinbase, etc.; the same is true for Bitcoin holders , the top three are Satoshi Nakamoto, Binance and the US government. Today, the cryptocurrency industry is metamorphosed amidst upheavals in the global economy and geopolitical conflicts. It requires each of us to return to zero, smash ourselves, abandon historical experience, re-examine and learn humbly like a newcomer.
1. Mining machine products and development trends under the great changes
With the conflict between Eastern and Western civilizations, geopolitical influence, the rise of OPEC+, pressure from green extremists, the continued inflation of the US domestic economy and the spread of the new cold war of deglobalization, it has become an indisputable fact that global traditional energy prices continue to rise. And it will continue for a long time to come. Therefore, energy-efficient machines are the best choice for future miners. In addition, on the one hand, criticisms of the environmental pollution of Bitcoin mining are rampant, and on the other hand, extreme climate regions limit the physical boundaries of mining activities. The industry urgently needs new technologies and products to address these potential challenges. In addition to traditional air-cooled machines, immersion liquid cooling is one of the options for next-generation technological breakthroughs and iterations.
In general, the main considerations for measuring the development trend of mining machine products are as follows:
1. ASIC process: It is the chip that determines the performance of the mining machine. At present, the 5nm process of chips for mining machines has matured, and the advanced 3nm process is being perfected. With the technological iteration and design progress of mining machine manufacturers, the technology of mining machine chips has matured in both design and production. Almost all of today's major mining machine manufacturers can easily integrate in TSMC's advanced process (5nm and 3nm) , Samsung (5nm and 3nm), and SMIC's N+1 and N+3 completed the design of energy-efficient mining machine chips. Judging from the machines produced by these three chips, TSMC is undoubtedly the best in terms of yield rate and performance, followed by Samsung, and the latecomer SMIC. These wafer foundries rely on the R&D investment of "harvesting" mining machine manufacturers to complete their advanced technology and process. The author even thinks that this is a kind of "little three-style undisclosed love-hate relationship". Because the fab manufacturers have always shown their high-end consumer electronics and artificial intelligence (think of the public relations crisis of gamers protesting against Nvidia’s “mining card” and Intel’s repeated failure of mining machine chips but nothing happened). Some fabs are unwilling to admit that it is actually the cryptocurrency mining machine business that gave them blood transfusions in the early stages of R&D, allowing them to complete advanced process breakthroughs that were piled up with a lot of dollars.
2. Energy Efficiency Ratio (PE) will be the only competitive indicator: Throughout the 14 years of Bitcoin, there has been a cycle of bulls and bears. In each bear market, the price of the currency plummeted at the same time, because a large number of mining shutdowns will also lead to a follow-up price of electricity. fall. However, this round of bear market that began in mid-2022 is the first time in history. There has been a reverse development in which currency prices have fallen and electricity prices have risen. In addition, the upcoming fourth round of block rewards will be halved. There is a harbinger of "killing" the mining industry. Of course, the development of mining chip manufacturing processes and the launch of high-efficiency machines have somewhat slowed down the "mining death penalty day". Therefore, in the future market, mining machine manufacturers are bound to compete in a market with low currency prices and high electricity costs. The PE of mining machines will become the only important performance indicator, and miners (as long as they have money) will choose high-energy-efficiency ones. Mining machines, in today's market environment, 25 J/T is an entry-level existence. To have a market competitive advantage, it is necessary to develop and produce mining machines around 20 J/T or below. From the perspective of machine form, in addition to traditional air-cooled machines, we should also fully promote the development and mass production of submerged liquid-cooled mining machines, so as to better adapt to extreme climate environments and be human-friendly.
3. Product parameters with competitive advantages in the next 6-12 months (before and after halving):
Products with a Competitive Advantage
- PE: 20 J/T +-3%
- Computing power: 160 TH/s +-3%
- Power Consumption: 3200W +-3%
Entry-level products in the market
- PE: 25 J/T +-3%
- Computing power: 130 TH/s +-3%
- Power Consumption: 3250W +-3%
Other mining machines with poor energy efficiency, such as those above 30 J/T, will face shutdown and elimination. Even if it is sold to those customers with extremely low electricity bills or stealing electricity, it is uncompetitive. What's more, the market for stealing electricity or "ultra-cheap electricity" is very small, unstable, and suspected of breaking the law, so don't spend money on it. Manpower and material resources work in such a market.
4. Why immersion liquid cooling is the form and even the infrastructure of future mining machine products
The mining machine industry is facing two major contradictions. One is that the investment in the research and development of advanced process chips is getting higher and higher, often hundreds of millions of yuan, while the performance improvement obtained is getting smaller and smaller. For mining machine manufacturers, this is a process of diminishing returns on investment. For mining machine manufacturers, it is necessary to improve the technical path with lower cost to achieve better energy efficiency. Immersion liquid cooling is the most efficient technology for heat dissipation, and in this environment, it allows the machine to increase performance by overclocking without the need for a chip upgrade. The combination of submerged liquid cooling and containers has a smaller footprint, a higher degree of modularization, low noise, and can overcome the impact of extreme climate and sandstorms. It is expected to become the infrastructure of the next generation of mining.
Another contradiction in the mining industry is that the computing power and mining difficulty of the entire network have repeatedly hit new highs, while the block rewards are constantly being halved. Therefore, for miners, this is also a process of diminishing returns on investment, and only big miners can win. It can be seen that the integration of the industry will be further intensified in the future. Conversely, the integrated mining machine industry has more abundant funds and motivation to promote product iteration and mine construction, which provides preconditions for the large-scale application of immersion liquid cooling technology.
2. Market and sales forecast: the relationship between supply chain, spare parts stocking and sales
Wafer and OEM: Under normal circumstances, the mass production cycle of wafers is 4-6 months. Due to the historical strong position of wafer manufacturers, mining machine manufacturers usually need to pay in full or at least 50% prepayment to lock in the wafer generation. work. This has brought considerable cash flow pressure to mining machine manufacturers. Coupled with the unpredictable bull-bear cycle of Bitcoin, it has increased the uncertainty of future sales and shipments for mining machine manufacturers. In order to solve the dilemma of mining machine manufacturers, only by doing a good job in market forecast and sales strategy can risks be successfully avoided. The author believes that according to market conditions and supply chain conditions, it is necessary to control the proportion of spot sales, increase the proportion of futures sales, and continuously optimize the customer structure to reduce risks. The specific strategies are as follows:
1. Futures sales strategy: 80% of the output is used for futures sales, delivery will be made after 6 months, monthly batches will be delivered, and monthly shipments will be arranged on average. This strategy can ensure the balanced, efficient and sustainable operation of production and supply chains. It can effectively reduce the cash pressure of wafer (chip) stocking, reduce the procurement cost of auxiliary materials and other accessories, and improve the efficiency of the supply chain.
2. 50% advance payment strategy: The customer needs to pay 50% of the total contract amount as an advance payment within one week after signing the contract, which is used to lock the unit price and production capacity, and also guarantees a large amount of cash flow required by mining machine manufacturers to purchase wafers. This strategy guarantees two things. One is to guarantee the cash flow required for the normal research and development, production and procurement of mining machine manufacturers, and the other is to share the risks brought about by the possible bear market. Because 50% advance payment can almost cover the cost of the machine.
3. Key customer strategy based on the 2:8 principle: As mentioned at the beginning, the decentralization of this industry is a false proposition. It is actually a highly centralized industry, especially the mining business requires a lot of capital and technical support. Those who survive the cycle of bull and bear are generally "big miners" who have technology, funds, and teams. They are more interested in mining for long-term strategy and business layout, not for short-term speculation like retail investors. Therefore, large customers and mining machine manufacturers often have strategic coexistence, win-win and co-prosperity partnerships, and are the mainstay of the cryptocurrency industry. Retail investors are at best supplementary in the layout of mining machine manufacturers, because the life cycle of retail customers is too short. , too fluid to maintain long-term cooperation. According to the author's observation, in the past five years, very few retail investors were able to survive a season. In the early days of the industry, except for Bitmain, most of the customers in the mining machine industry were domestic mining companies and domestic retail miners, and there were almost no major international customers. In the past four years, the author has seen that various mining machine companies have gradually established a strategic customer system based on major international customers. Customers include well-known old mining companies and emerging US listed mining companies. , Hut8, CoreScientific, Bitfarm, Bitfury; and emerging listed companies such as HiveBlockchain, Mawson, IrisEnergy, Marathon, Riot, etc. The average sales revenue from major customers accounts for more than 80%, which is a solid revenue base.
3. Sales Operations and Sales Management
1. Market forecast: Generally speaking, sales operations should do a rolling forecast every three months in the next 12 months, but it is not easy for the bitcoin mining machine industry to do such a sales forecast well, and its regularity is out of order follow. Absolute forecasts are impossible, but basic forecasts can still be done. For example, it is possible to predict rolling sales every three months by combining its own futures orders with market trends. Since the production of mining machines is from wafer to product, the supply chain is extremely long, which requires professionalism in sales operations and the ability to grasp the market, so as to achieve as accurate prediction as possible and reduce out-of-stock or inventory.
2. Sales price: The price of mining machines is very transparent. The market is not big and there are not many players. In addition to pricing based on experience and cost, mining machine manufacturers should also consider channel inventory and the next 3-6 months. Factors such as the location of the mine and the supply of power resources, currency prices, electricity prices, and the computing power of the entire network. In terms of pricing, generally speaking, the miners' payback period of 12 months to 18 months is a competitive price. 18-24 months is normal, and 24-30 months is basically not easy to sell. Most miners are speculative. On the one hand, they only want to make quick money. On the other hand, they are unable to predict the medium and long-term trend of BTC.
3. After-sales service: The working environment of the mining machine is very poor, so the stability, roughness resistance, easy operation and maintenance, and easy replacement of the mining machine are important indicators. In addition, timely after-sales service is the top priority. In a normal mining environment, time is BTC, so stable and rugged machines and timely after-sales service are also important options for miners to consider when purchasing.
4. Sales reports and CRM: This industry is different from traditional FMCG or traditional IT industries, and more like a speculative financial industry. Therefore, sales analysis can only be a true reflection of current data, and should not have much reference significance for history and the future. On the contrary, data such as currency prices, mine positions, electricity prices, network computing power, and difficulty coefficients have more realistic guiding significance for sales. The customer data in the CRM is eliminated periodically, and the retention rate is low. The long-term customers are mainly a dozen KA customers, and most of the small and medium retail investors died "before the dawn of the bull market."
4. Channels: Opportunities and Risks Coexist
Any industry, no matter 2B or 2C business, is inseparable from "channels". Taking the fast-moving consumer goods industry as an example, some people once thought that channels are king, and mistakenly thought that with channels, they had everything. Dealers and agents often Ending a sleepless night at a masturbating speed, branded commercial products, brands and services firmly stuck to consumers, and also severely slapped channel operators in the face. In the field of FMCG, distributors have been educated and matured. After nearly 20 to 30 years of development and management, distributors have given up the arrogance of the early self-righteous channel as king, and today they have almost become "willing" brand owners Luye Yes, the low profile of making a fortune silently under the banner of a big brand has become their normal state and cognition of the three views, which corresponds to the old saying: get rich silently. However, in contrast to the development of the 2B industry, channel operators are developing in a more and more professional direction. They not only need to expand channels, provide technical support before and after sales, improve solutions, and have strong funds to stock up on goods. It is true that such channel providers also have more voice and decision-making power. It is precisely this kind of "desire for power" that has made their "ambition" ups and downs, often unconsciously disrupting the brand owner's channel strategy, price strategy, inventory strategy and customer management strategy, and inadvertently going to the opposite of the brand owner.
1. Like water, a channel can carry a boat or capsize it
Channel management is a complex art of management. It is not a cold channel, but more of an understanding of human nature. The game between brand owners and channel operators on desires and expectations is also a touchstone of the human nature of salespeople. When brand owners are in a weak position, channel operators will maximize their own interests regardless of the interests of brands and customers, and quickly reap all the benefits that can be harvested. Short-term speculation is very clear. In this case, there will often be regional/channel vendors dumping each other, robbing customers, smashing prices, causing the brand owners themselves to fail to ship normally, resulting in high inventory pressure and chaotic market prices. External customers complained constantly, and internal sales staff competed internally. The brand owner was kidnapped by the channel provider, not only lost profits, but also offended customers. When the distributor is in a weak position, the brand chamber of commerce often blames the distributor for poor expansion and delayed business opportunities. Looking at the development and routines of mining channel operators in the past few years, they have used very skillful strategies to close the doors in the bull market, play cards and drink, bottom out in the bear market, and the leeks of mining machine manufacturers.
(1) Bull market: Do not participate in the competition to buy relatively high-priced mining machines at this time, just sit on the sidelines and play cards with friends. If you have an opportunity, you can make a move, quickly change hands, and make a difference.
(2) Bear market: From time to time, we will pull up mining machine manufacturers who are under the dual pressure of inventory and cash, and make a game to set up a package to send a date, and trick the mining machine manufacturer into signing a "so-called mortgaged installment contract", but The down payment ratio is very low, but it locks the price and production capacity of mining machine manufacturers. Turning around, they shouted orders in the market again, raised a little price (their quotation was lower than the official price of the mining machine manufacturer), resold the machine or even resold the contract. As a result, the market price is chaotic. As long as the inventory machines of the channel dealers or the machines on the contract list are not sold out, the inventory of mining machine manufacturers cannot be sold, because the price and shipment are completely controlled and kidnapped by the channel dealers. The channel dealers made money, and the mining machine manufacturers were cut off from the leeks.
2. Looking at the confusion of channel management in the mining machine industry from several leading manufacturers
(1) During the bull market, mining machines are in short supply, and miners and agents are hard to find. On the one hand, top manufacturers retain the largest sales profits in their own exclusive sales companies; Encouraging bottom-line kickbacks. What we can see from the market side is that the price is not transparent, and the price is increased layer by layer. The customer's sales experience is very poor, and the reputation of integrity is very poor, which leads to the loss of major customers.
(2) During the bear market, due to the pressure on the channel to hoard goods in the early stage, once the bear market comes, the agents panic and choose the "best policy" dumping strategy, which leads to instant market price chaos. Miners and channel dealers desperately demand mining machine manufacturers Money back and return coupons are issued to make up for the loss. If the manufacturers have sufficient cash, they can actually accept refunds to make up the difference, but the problem is that the bear market is coming, who has extra cash? Who wouldn't want to stockpile a little extra cash for the winter? What's more, the original receiving prices of miners and distributors are not necessarily all the prices of first-hand manufacturers. Since the bear market this year, channel dealers have turned against the water collectively, and have repeatedly staged lawsuits.
(3) There is a large backlog of channel inventory, and price dumping is imminent: According to incomplete statistics, there are currently about 1 million channel inventory in the market, including the inventory that has not been launched by agents and mining companies. With the continuation of the bear market and the imminent halving Coming, the iteration of a new generation of mining machines is completed, and the current channel inventory machines will soon become scrap iron. In order to reduce losses as much as possible, leading manufacturers will cut meat and bargain prices and dump in time. In this round, if some leading manufacturers can sell at a timely price, they can kill two birds with one stone. On the one hand, they can solve the inventory pressure, and on the other hand, they can crush other manufacturers to death before the dawn of the bull market. If other manufacturers want to survive, they need to implement a faster and more ruthless sales and price strategy, a precise price sniping strategy.
3. 2B business model: key customer model vs individual customers and retail e-commerce:
(1) Mining machine sales is a simple 2B business. Big customers bring big sales, and the professionalism of customers is the basis. E-commerce retail and individual customers are just picking up the leftovers. Some mining machine manufacturers have wishful thinking about retail individual customers and e-commerce, thinking that they can support the company. In fact, regardless of Bitmain, Whatsmart or Avalon, 80% of sales come from less than 20% of major customers.
(2) Communication and service costs between major customers and retail individual customers: major customers have professional operation and maintenance and engineer teams, and after-sales service and updates are connected by dedicated personnel, which is efficient and labor-saving. FITs lack a team, often a small firmware update, a power outage and a power-on have to toss a bunch of after-sales engineers from the mining machine manufacturer, often because they don’t understand themselves, and finally complain to the manufacturer. For the manufacturer, it is thankless, the business is not big, and the service is indispensable.
5. The smoke-free war between miners and mining
1. The early miners were mainly mines in Yunnan, Guizhou, Sichuan, Xinjiang and other places in China. They mainly used thermal power and hydropower in the wet season. The power cost and operation and maintenance cost of mining were very low, and 10,000 machines were deployed. Hire 3-5 rural children who have graduated from high school, and with a little training, they will be able to work and maintain the operation of the mine. Therefore, China's mining industry has a very large competitive advantage. For a time, China accounted for 70% of the world's entire network computing power.
The miners in this period were basically the first batch of bitcoin adventurers and crab eaters in China. They were either keen-eyed speculators with a little spare money, or technical men involved in blockchain and BTC. After several rounds of bull-bear cycles, the miners gradually became stable. There were only a few large miners in China, and they were quite concentrated, just like mining pools and exchanges. The nature of mining determines that miners must obtain the most bitcoins at the least cost, so electricity stealing and low-cost electricity are their first choice, so the relationship with local officials has also become an important part of the stake, often pitted So much so that the Chinese government successively issued anti-corruption and green carbon-neutral policies to kill rabbits, and at the same time knocked down mining activities in various places.
2. On September 3, 2021, "National Development and Reform Commission and other eleven departments jointly issued a document to rectify virtual currency "mining"", and then on September 24 of the same year, the central bank and other ten departments issued "Notice on Further Preventing and Dealing with the Risk of Virtual Currency Trading Hype" ", directly blowing up the crypto and mining circle in China. When they wake up, the first action they take is to "relocate the platform and employees overseas" and "dismantle mining machines to Kazakhstan, a friendly country in Central Asia on the border of Xinjiang."
(1) Kazakhstan not only has cheap electricity, but also the law clearly states that mining is legal, and mining machines are tax-free. Overnight, it became a paradise for Chinese miners. In just three months, that is, from October to December, Kazakhstan’s Bitcoin hash power has risen to 30% of the entire network’s hash power, and it has become the world’s second largest hash power contributor . The structure of miners during this period also changed. In addition to Chinese miners, Kazakhstan energy-based participants were added. On January 6, 2022, riots broke out in Kazakhstan, which shattered the dreams of all Chinese miners, and also shattered the short dream of getting rich that Kazakh miners had just tasted a little bit of sweetness. Since then, Kazakhstan's mining policy, taxation policy and electricity fee have embarked on a road of "self-inflicted evil". A large number of Chinese miners fled to Kazakhstan immediately, carrying machines on their backs and carrying bitcoins in their pockets. They rushed across the road and went straight to the United States, which they believed to be the next golden land.
(2) The U.S. market and U.S. miners, which have been crushed by Chinese mining machines and miners, saw hope and took advantage of the situation to seize mining resources, invest heavily in the U.S., especially in Texas, increase leverage Bitcoin financing, and build mines When buying a mining machine, American mining companies sprung up like mushrooms after a spring rain. During this period, a large number of Chinese miners poured in. In just a few months, the computing power of the United States rushed to the top of the world. The structure of miners in this period has added institutional investors with Wall Street backgrounds and a number of listed mining companies. So far, the United States has completed all the strategic engulfment from Bitcoin bottom-level mining to upper-level exchanges. Global computing power, global exchanges and global mining pools are integrated to dominate the world's Bitcoin Kingdom strategy. At present, the mining machine manufacturers have not been "deceived/forced" to the small last link in the United States, but it seems that it is only a matter of time before this step is completed.
(3) Looking at it now, the miners who are still alive can basically be divided into: energy miners, institutional investment miners, traditional old mining companies and emerging NASDAQ listed mining companies. Among them, the old-fashioned mining companies are the most capable. They have survived the wind and rain and survived. The main reason is their understanding of the industry, risk control and timely prediction of the bull-bear cycle.
6. Mining business and strategy
1. Three major risks of mining business
(1) Risks of policy and regulatory transactions: Looking at home and abroad, mining business is a high-risk business. Uncertainty risks at the policy level of various countries can be seen everywhere, come at any time, are unpredictable and cannot be avoided. Legality, tax compliance, legal currency and BTC transaction compliance, how to avoid the risk of dirty money, etc.
(2) The risk of electricity price and electricity supply: electricity price is the most basic element of whether mining is profitable and whether investment recovery is fast. Maintaining a stable and low electricity price is the only magic weapon for mining business profitability. In addition, stable power supply, 24/7 power supply is also a key factor for stable profitability.
(3) Risks of partners: The high profitability of this industry often arouses human greed. To avoid the risk of partners "eating blacks and closing doors to fight dogs", it is necessary to avoid short-term opportunists, speculators, strangers Customer cooperative mining business.
2. Selection of mining business partners: three types of partners
(1) Resource-based customers: They are well-known local enterprises and entrepreneurs with energy resources, social status and honor. Such customers are unwilling to violate laws and regulations, and will not be blacked out for a little profit. Often such customers can also help mining machine manufacturers to settle some local government relations, which is conducive to the extension and sustainable development of mining business.
(2) Emerging listed companies (clients): North American mining listed companies, they are standardized and professional, mature in technology, efficient in operation and maintenance, and financially compliant, with institutional investment behind them, abundant funds, they focus on word of mouth and long-term development, and have long-term plans , is a good strategic partner for mining business.
(3) Established mining companies: They are evergreen trees in this industry. They have been operating in the mining and crypto for many years. They are very professional, understand the industry, have technology, and know how to operate and maintain. They are expert partners. But they are also fussy, and they specialize in small accounts, and they are industry veterans who are short of money. Cooperating with them is easy to be taken advantage of by them. Of course, it can also train the team and improve the self-operated mining operation and maintenance and operation capabilities of mining machine manufacturers.
3. Why start a mining business?
(1) During the bull market, the mining business can continuously bring cash (BTC) to the mining machine manufacturers every minute and every second, just like a banknote printing machine, which can enable the company to quickly increase the revenue volume, increase the company's market value and diversify value of business operations.
(2) In a bear market, the price of the machine may fall below the production cost. It is better to sell the machine than to put the machine in the mine for self-operated mining. On the one hand, it undertakes the shock absorbers of the supply chain to maintain the normal operation of production and supply chain, on the other hand, it reduces inventory and maintains a low level of operating income. Once the bull market comes, you can sell the machine and the mining business together to get more profits, and you can continue mining to obtain the huge value brought by BTC. Both hands can be switched freely.
(3) Computing power and computing power business: build a computing power platform and computing power sales business, and seamlessly evolve the simple mining machine manufacturer business to a high-level business model of computing power sales and computing power securitization.
4. Where is the mine in the future?
(1) As far as the current signs are concerned, the US government is killing cryptocurrencies. In order to maintain the supremacy of the US dollar, they are planning to kill Bitcoin trading platforms (FTX, Coinbase, and Binance are the best recent examples) , In addition, in the past year, various states in the United States have introduced many unfriendly policies for mining (construction environmental impact assessment requirements, electricity prices, taxes, etc.). Dog" style one-time slaughter. The current mines of about 3000 MW in the United States were culled overnight, and there will be no more bitcoin mining in the United States in the future. In a word, the US market will cease to exist. It will be very dangerous to continue to lay out the US market now, and it is an unwise decision with high risks to invest in the construction of mines in the United States.
(2) Kazakhstan: A typical central Asian government management model, corrupt bureaucrats, pretending to know what they don't know, and self-inflicted evil. Since the turmoil in January 2022, the government has successively introduced a series of unfriendly policies aimed at mining and trading, and directly wiped out a good and thriving mining industry in Kazakhstan, ranking second in the world. It accounts for 30% of the computing power of the entire network, and it is less than 5% in one cut. The author is curious, is Kazakhstan wanting this ending today, or is the US government instigating Kazakhstan to do this?
(3) South America is the next choice for mining: abundant hydropower, cheap electricity, cheap sites, relatively friendly policies at present. For example, Uruguay, Paraguay, Mexico, etc., have low political stability, low transparency, and poor policy continuity.
(4) Arab countries in the Middle East: cheap electricity prices, cheap sites, and friendly policies. Liquid-cooled machines are more efficient and better able to withstand extreme climates. The downside is that the annual power supply efficiency is less than 70%, various resources are highly monopolized, and "traditional Arab business etiquette is lengthy."
(5) North African countries: rich in power resources, lack of industry, mining is the best industry to rapidly develop the local economy, and can get strong support from the current government. The risk is political instability and poor security. Recently, countries with abundant hydropower resources and cheap electricity prices include Ethiopia and so on.
(6) Russia: There are abundant power resources, the mining industry developed earlier, and there are a large number of very mature practitioners. The downside is that Russia is sanctioned by the United States, the business environment is not good, and the spirit of the contract is weak.
(7) Iran: I will talk about Iran alone because they have been mining, using second-hand mobile phones on the market, controlled by the National Guard, and digging quietly, as if they have never stopped.
7. Mining machine manufacturers go overseas: both globalization and local strategies must be grasped and hardened
The world economy has developed vigorously under the development of globalization in the past 30 years, especially the developing countries led by China have benefited a lot. The rapid development of economy and technology has become the beneficiary of globalization. Since China banned the mining industry in 2021, North America, Central Asia and other regions have increased support for the mining industry. Sichuan, the "mining capital" that is popular on the Chinese Internet, has also given way to Texas in the United States. Various mining machine manufacturers are seeking ways to go overseas. The author believes that as far as the company's business is concerned, it is completely correct for mining machine manufacturers to adhere to the globalization strategy. The key is how to implement the globalization strategy and the globalization path?
1. Grasping with two hands, hard with both hands: Local talents and local economic foundation must be strong. Only with a strong local foundation can we have the ability to go out and go global, and globalization will have talent reserves, economic support and material foundation. Otherwise, even if "globalization" is forced to go to sea, it will be short-lived and short-lived. At best, it is called "red apricot out of the wall".
2. The path of globalization: Looking at China's economic development in the past 30 years, in the traditional physical field, except for the photovoltaic industry, most Chinese companies are limited to cheap labor services and commodity exports, and few technologically original products and companies go overseas. In the field of Internet and communication equipment, Huawei, Transsion Holdings, and cultural and entertainment companies represented by Bytedance and Mihayou have gone overseas in recent years. The uniqueness of the mining machine industry is that no matter how much it is questioned, it represents the combination of high-end manufacturing and emerging finance to a certain extent. In the past few years, due to the high degree of monopoly in the industry, the export of mining machine manufacturers is limited to the export of products, and the supporting service capabilities have lagged behind. At the same time, the periodic switching between the strong seller's market and the strong buyer's market makes mining machine manufacturers have no sufficient motivation to build service capabilities. However, after 2021, with the rise of institutional customers, mining machine manufacturers have gradually realized the importance of services.
At present, some mining machine manufacturers have begun to build service sites and branches in overseas markets, which is a good thing. But at the same time, it should be noted that globalization still requires a local perspective, building teams according to local conditions, and being familiar with local laws and regulations, work habits and culture to maintain long-term customer relationships, so as to gradually build a moat of service capabilities. These are not achieved overnight, and it takes daily steps to replicate successful management and business models. Rome was not built in a day, and there is often only one road to success, but each road to failure has its own pitfalls. What the author has seen with my own eyes is that some companies are blooming everywhere, and the nomadic model of staking land will eventually exhaust resources and return with a feather.
3. The U.S. government and cryptocurrencies: The U.S. government has a complicated relationship with cryptocurrencies, and obtained a large amount of bitcoins by strangling the "Silk Road". The anonymity and black transactions of cryptocurrencies, as well as providing funding channels for countries on the sanction list such as Iran and Russia, are not allowed by the US government. They will not tolerate a challenge to the hegemony of the US dollar, just as they are unwilling to accept China's peaceful rise. After a series of thundering incidents such as Three Arrows Capital and FTX, the SEC’s successive lawsuits against Coinbase, Binance and Tether can show the determination of the US Democratic government to kill cryptocurrencies.
4. Tether and its strategy: As the world's largest stable currency, it is crucial to maintain the stable development of the BTC market. According to a senior practitioner, a senior executive of TEDA revealed not long ago that they plan to use the annual profit of 4 billion U.S. dollars as a fixed ratio to buy BTC. At the same time, they will also expand their mining business and invest several 100 million US dollars to support the support of computing power and the motivation of mining machine manufacturers. From this point of view, TEDA has become a rare Don Quixote in this industry. The author here wants to boldly imagine that in the context of a run on crypto-friendly banks, TEDA’s ambition may be to play the role of the “Federal Reserve Bank of Thailand” in the crypto industry, relying on a key rescue to completely secure its position as the leader of the rivers and lakes.
Eight, a little guess about the near future
The development of Bitcoin cannot be controlled by a government or an institution, especially in the conflict between Eastern and Western civilizations, geopolitical conflicts, currency hegemony and monopoly conflicts, energy tensions, and the new cold war under deglobalization in the current and future period. Wait, the world may need cryptocurrencies more, especially Bitcoin.
The periodic reappearance of "institutional cattle"
From 2010 to the present, Bitcoin has been unilaterally declared "dead" 474 times (see 99Bitcoins), which is enough to show that Bitcoin is an unbeatable Xiaoqiang. What the author observed is that after a series of thunder and baptisms, Bitcoin has shown signs of resurgence. The US government and institutional investors often go their own way with Bitcoin. In the eyes of the U.S. government, dollar hegemony is the core, and Bitcoin is at most a black glove, so don’t try to wash it. In the eyes of the organization, it is really fragrant to be able to cut leeks. BlackRock, the world's largest asset management company, personally promoted the Bitcoin spot ETF. Its application record for ETF is also a success.
The entry of institutions will further promote changes in the capital structure of the Bitcoin industry. In the early years, the crypto and mining circles were basically full of gambling opportunists, and they often made a lot of money or lost everything in the short term. Therefore, the industry has always been a small number of people "making money silently". In the late 2018 and early 2019, institutional investors of traditional Wall Street financial funds, family funds (old money), and companies with traditional energy backgrounds gradually entered the game. The composition of the industry is gradually changing. Started to dance with Wall Street. Of course, this also means that Bitcoin will be less volatile.
Bitcoin's "surname" is not important, making money is very important
As for the compliance of cryptocurrencies, it has always been volatile, and the SEC and CFTC fight daily. In recent days, U.S. senators will introduce a new revision of the encryption regulatory law to expand the power of the CFTC, which stipulates that even non-decentralized assets can be regulated as commodities as long as they do not involve corporate debt and equity. See Americans also understand the "wisdom of future generations", so the question of what Bitcoin is called will be put aside for now. At present, the inflation in the United States is not falling, and there is no one to take over the high U.S. debt, which further damages the credibility of the dollar. The silent tossing of coins is also one of the measures taken by the US government to recover the US dollar to boost confidence. Therefore, in this context, it remains to be seen whether the compliance of cryptocurrency is really compliance or old wine in new bottles. However, when a new generation replaces an old one, as long as the liquidity is still there, you can continue to play music and dance.
Asia still cannot be ignored
In 2021, China will drop a heavy hammer on Bitcoin. Two years later, the United States will sue several major exchanges such as Binance and Coinbase. Now China has acquiesced in Hong Kong’s support for Web3.0 and cryptocurrencies. It can be seen that the attitudes of governments towards cryptocurrencies are ambiguous. clear. In the past two years, funds have begun to flow back to Asia, Singapore is in full swing, and Hong Kong does not want to give up its status as Asia's top financial brother. Singapore and Hong Kong are competing against each other, and in the process of continuous competition for funds, the biggest winner must be cryptocurrency. It is worth noting that in June 2023, Japan's "Fund Resolution Act Amendment" was voted by the upper house, becoming the first country in the world to enact a stable currency bill. For the foreseeable future, Asia will remain an important pole of the cryptocurrency industry map. In addition, against the backdrop of the global economic downturn, an increasing number of governments in small countries in Africa and South America are also opening up.
Under the new Cold War situation, the results of the U.S. government’s supervision of Binance and Coinbase are also different. Binance’s market share in the United States is only 0.9%, while Coinbase’s market share in the United States jumped from 48.4% in June to 55%. On the hidden front of cryptocurrencies, both China and the U.S. are likely to support their respective centralized exchanges to attract overseas funds and, if necessary, take steps to prevent mass exodus.
In Central Asia, Kazakhstan has been receiving the most attention. In 2021, the country will become the region with the fastest growth in hash power, and then it will drop sharply due to power shortages and policy reasons. The government of Kazakhstan has collected $7 million in taxes from cryptocurrency mining entities in the past year. As of April this year, the government’s tax on crypto mining was $541,000. If this standard continues, it can be calculated that 2023 The annual tax collection amount is only about 1.62 million US dollars, which is mainly due to the policy blow to the country's encryption mining industry. As a resource-based country, there is nothing wrong with using excess electricity to generate income. The last round of policies was mainly a response to low electricity taxes for illegal mining and encrypted mining. The cryptocurrency mining industry, which is one of the sources of tax revenue, will not be completely banned. The intensity of the policy crackdown depends mainly on how much the government can get from it. What the author sees is that the country then plans to introduce new regulations, including miner licenses, use of licensed exchanges and mining pools, etc. These measures will further reduce tax evasion and improve industry transparency, rather than expelling the mining industry from the country. The current sharp drop in mining taxes also shows that the country's mining industry needs some time to recover in order to rebuild the confidence of capital. In addition, improving the efficiency of electric energy utilization requires the introduction of more advanced machines and equipment, so for some time in the future, we may see that the country’s government has loosened the value-added tax on mining machine imports and digital mining taxes and fees.
Green Mining: The "Certificate of Voting" that Bitcoin Mining Must Submit
After the last "Crypto Winter", the Bitcoin mining industry has entered a period of consolidation. The current situation facing the Bitcoin mining industry: 1) Political correctness: the sustainability of the Bitcoin mining industry under the framework of carbon reduction; 2) Funding sources: The Bitcoin ETF is a double-edged sword for the mining industry, and the launch of the ETF will undoubtedly increase the value of Bitcoin. However, ETFs provide institutional investors with a zero-threshold deposit channel. In this case, who will spend effort on large-scale mine infrastructure and equipment purchases? 3) Listed mining stocks have begun to look for a new so-called "diversified income" narrative, that is, using mining graphics cards as AI.
Today, in the face of the powerful U.S. government, the Bitcoin mining industry cannot "enclose itself." If you want to live a decent life, you must be "green". First of all, regarding the sustainability of mining. Under the framework of global carbon reduction, green mining is the only way for future industry compliance, which means that in the long run, only companies with strong capital and deep government relations can survive. At present, the listed companies in the industry have taken some actions, and established the BMC Mining Association to regularly disclose operating data. These companies also need to set up a professional lobbying team to clarify the continuous optimization of the encrypted mining power structure and its role as a source of new energy power subsidies. Secondly, mining companies are also looking for cheap hydropower in other regions outside of North America, such as Northern Europe, and increasing their tie-up with energy companies, especially new energy companies. Finally, ESG will undoubtedly be the narrative standard for listed companies in the future, and Bitcoin mining companies are even more unavoidable. You might as well set up an organization similar to the Green Foundation, and allocate some money every year as a "voting certificate" for the US decision-making elites. Greater discourse power at the legal and public levels.
