Original source: Gyro Finance

Prices continue to fall, and the industry is worried, but there is one group that may be more anxious.

As Bitcoin once fell to US$54,000 (now back to US$57,000), miners who were already suffering from a sharp drop in profits after the halving have become more difficult to survive. According to investigation agencies, if Bitcoin comes to 54,000, only ASIC mining machines with an efficiency exceeding 23W/T can make a profit, and only 5 models of mining machines can struggle to support it.

But the culprits behind this decline are undoubtedly part of the miners. In order to cope with the cash flow problems after the halving, the selling of mining companies is still continuing. In June of this year alone, 30,000 Bitcoins from miners entered the market. market.

As BTC approaches the shutdown price, the capitulation of miners is coming to an end, but the impact of halving and price changes on them is more profound than imagined.

For the total number of Bitcoins fixed at 21 million, the importance of miners as direct producers is self-evident. Before institutions poured into BTC, mining companies used to have the largest say in the Bitcoin industry. The business process of miners is also very simple. In addition to their own mining and mining machine sales, they also provide hosting services for others. The corresponding costs are electricity prices, labor and warehousing maintenance fees. Since the costs are relatively controllable, it can be inferred to maintain the mine. The basic price for machine operation, which is also called the shutdown price of the mining machine. Of course, no matter what the model is, the higher the BTC premium, the higher the profits. Starting from 2011, mining has made batches of people rich, and the long history of encryption has also left a bitter footnote for miners.

In addition to growing energy costs, mining rewards are the most important metric for miners. In order to limit the mining speed and inflation of Bitcoin, the rewards miners receive through mining will be at a fixed block height, that is, every time the Bitcoin blockchain generates 210,000 blocks, the Bitcoin block reward will decrease. Half. This process happens about once every 4 years. In April this year, Bitcoin completed its fourth halving, and the mining reward dropped from 6.25 BTC to 3.125 BTC.

Every few years, miners' profits will drop by half, and the resulting input-output ratio will drop rapidly. The mechanism will force the mining industry to become more refined, industrialized, and large-scale. After all, as computing power increases, the probability is more likely to be determined. sexual profits, which also makes mining a typical asset-heavy industry. And due to the decline in profits, after the halving, the shutdown price will increase, and miner capitulation will also occur. Simply put, miner capitulation means that some miners reduce operations or sell the BTC they mine to make ends meet or hedge risks, which usually triggers a further decline in the price of Bitcoin.

This situation undoubtedly also occurred after this year’s halving. According to data from MacroMicro, the average cost to mine a single BTC soared to $83,668 in early June, declining slightly to about $72,000 as of July 2. Costs have soared, but total miner revenue has plummeted to $30 million from an average of $107 million per day before the halving, reflecting the increased difficulty in operating miners.

Data from James Butterfill, director of digital research at CoinShares, shows that during the April halving event, Bitcoin prices hovered around the average miner’s cost of production. Of the 14 miners identified, half of the well-known miners, including Bit Digital and Riot Platforms, have higher than average overall production costs.

Bitcoin mining pool operator F2Pool also confirmed this conclusion. Based on the estimated energy cost of US$0.07 per kilowatt hour, when the BTC price was US$54,000, only ASIC mining machines with unit power of 26 W/T or lower could gained profit. Looking at specific models, six Bitcoin mining rigs, including Antminer S21 Hydro, Antminer S21 and Avalon A1466I, achieved Bitcoin breakeven at $39,581, $43,292 and $48,240. Other models such as the Antminer S19 XP Hydro, Antminer S19 XP, and Whatsminer M56S++ are profitable at Bitcoin prices of over $51,456, $53,187, and $54,424 respectively.

The break-even points of different types of mining machines under different energy prices, source: F2Pool In this context, with the ebb of Inscription, whether for cash flow reserves or industry migration and exit, mining companies naturally chose to sell to survive. Since June this year, crypto miners have sold more than $2 billion worth of Bitcoin, totaling about 30,000 coins, and the number of Bitcoins held by miners has dropped to the lowest level in 14 years.

But fortunately, regardless of the fact that the previous bear market stress test gave miners a good asset-liability ratio, from a market perspective, with the decline in Bitcoin prices, small and medium-sized mines have begun to gradually cease operations, and the difficulty of Bitcoin mining has increased. Falling rapidly, the miners' surrender was about to end. On July 9, BTC.com data showed that the Bitcoin mining difficulty was lowered by 5% to 79.5T, and the average hash rate of the entire network in the past seven days was 586.72EH/s. Echoing this data, since May, the number of Bitcoins sent by miners to exchanges for sale has dropped significantly, and OTC trading volume has dropped significantly. Compared with the previous accumulation of selling pressure, the mining OTC desk on June 29 All trading volume has been exhausted.

In addition to capitulation after the halving, integration and mergers and acquisitions have also become the main trends in this round of mining company cycles. Upgrading equipment to increase production capacity, developing low-cost energy areas, and merging mining pools all require a huge cash base. Therefore, for small miners whose balance sheets are not optimistic, the best way is to raise funds, or more directly - was acquired.

From a certain perspective, the acquisition of miners is also the gathering of mining pools, which has more practicality. Even before the halving, 10 leading miners raised a total of US$2 billion in total proceeds through equity financing activities. Marathon Digital, CleanSpark and Riot Platforms were the companies that raised the most funds in the Q4 quarter of 2023, accounting for 1% of the funds raised. 73%. In April this year, Bradford predicted that the mining industry would eventually consolidate into four core companies: CleanSpark, Marathon, Riot Platforms and Cipher Mining. It is worth mentioning that these mining companies are also the main force in selling BTC after the halving. Taking Marathon as an example, it sold more than 1,790 BTC in May and June.

Monthly BTC production of the top ten listed miners, source: Farside Investors On the other hand, these four companies also live up to expectations. In June, CleanSpark acquired micro-miner GRIID Infrastructure for US$155 million and is expected to increase its power capacity by 400 MW. CleanSpark also spent US$25.8 million to acquire a total of 60 megawatt (MW) Bitcoin mining farms in rural Georgia. .

Back in May, a more controversial acquisition was also taking place. Riot Platforms acquired 9.25% of Bitfarms' shares on May 28, becoming the company's largest shareholder. Finally, Riot purchased 1.5 million shares on June 5, increasing its shareholding ratio to approximately 12%. Due to the high amount of Shareholder ownership and corporate governance concerns led to its request to add independent directors to Bitfarms' board of directors. It was subsequently opposed by Bitfarms, and even announced on June 10 that it had approved the adoption of a shareholder rights plan "poison pill" to prevent acquisitions by peers and competitors.

Cipher Mining purchased 16,700 mining machines as early as January this year, and installed the latest generation of mining machines, Avalon A1466, at its Bear and Chief Mountain plants in Texas in the second quarter.

Other miners are also working hard to take various measures to improve the efficiency of mining machines and improve their chances of survival in harsh cycles. Over the past 6 months, Iris Energy has reduced average energy consumption by 15% to 25 J/TH, while TeraWulf efficiency has increased by 11% to 24.6 J/TH. Core Scientific has also emerged from bankruptcy marketing and currently leads the way with an efficiency of 24.23 J/TH.

But in any case, overall, the dominance of the mining industry is an inevitable trend. In addition to seeking regional differences or improving efficiency to obtain lower costs, small and medium-sized mining companies have weak competitiveness in the long term. The gradual increase in shutdown prices has set off a clearing trend. Low tide is also normal.

The industry is highly cyclical and profit uncertainty is increasing. Against this background, even leading mining companies are diversifying their strategies to tide over the difficulties. Among them, it is inevitable that some companies are planning to start a new business. The hot new star AI has become an emergency landing place for mining companies eager to transform.

Different from previous cycles, among the world's four leading mining companies, the stock price this year has not outperformed the growth of Bitcoin, but the growth of medium-sized mining companies has been quite obvious. The core reason is the integration of the AI ​​wave. In recent months, Recently, many Bitcoin mining companies have begun to replace some of their mining equipment with equipment used to operate and train artificial intelligence systems.

As we all know, AI, especially the training of large models, is a scenario with high computing power and high energy consumption. However, before the emergence of GPT, data center operators and mining companies were not friendly to this business and believed that the business efficiency was not high enough. But after the emergence of GPT, everything changed quietly. One striking data is that ChatGPT query consumes 10 times more energy than Google search.

Based on this premise, AI companies began to seek warehouses with cheap energy and capable of carrying large amounts of computing equipment. However, the approval of data centers is strictly regulated in various countries. Taking North America as an example, it may even take several years from initial approval to completion of construction. , and sites with power exceeding 100 MW and high-voltage substation transformers in place are extremely rare. A few years ago, 80% of data center loads were focused on only 6 to 7 markets. However, Bitcoin mining companies with cheap electricity, appropriate physical space and computing infrastructure are naturally highly suitable for this demand.

Already, miners have begun to enter this field through space equipment rental and self-operated computing power. Core Scientific, which had declared bankruptcy, signed a 12-year partnership with artificial intelligence startup CoreWeave in June to provide more than 200 megawatts of GPUs. CEO Adam Sullivan said in an interview, “There are many invitations from AI. AI companies are actively bidding and starting to subscribe for mining facilities at market prices higher than those in the encryption field. After the announcement of the AI ​​infrastructure transaction, Financing and partnership intentions from top private equity firms are also increasing.

A typical case in the self-operated direction is Hut 8, which received a US$150 million investment from Coatue this year. The purpose of financing is to build artificial intelligence infrastructure. It has previously purchased the first batch of 1,000 NVIDIA GPUs and expanded GPU as a service. model. Not to be outdone, Bit Digital said it had reached an agreement with a customer to provide it with 2,048 Nvidia GPUs over three years.

Of course, even transforming AI is not as easy as imagined. Not all mining farms can be converted into compliant data centers, and more importantly, the cost of building or repurposing data clusters to accommodate AI computing is not cheap. The capital expenditure required to operate artificial intelligence is approximately It is 20 times that of Bitcoin mining. Therefore, as long as the mining business is profitable, small and medium-sized mining companies will continue.

But the effect of transformation is significant. Taking the above-mentioned companies as an example, Core Scientific is expected to increase its estimated cumulative revenue by US$1.225 billion within the 2-year contract timetable, while 6% of Hut 8's sales come from artificial intelligence, and Bit Digital's AI revenue has accounted for 27% of the total. %. The expected benefits can also be seen in the stock price. Core Scientific stock price rose 25.33% in the past January, Bit Digital rose 31.25%, and Hut 8 soared 67.41% during the month.

Taken together, whether they actively seek change or are forced to transform, the miners' defense war has just begun, and the acquisition wave is only in a very early stage. In the long term, given the cyclical nature of mining, diversifying and transforming to broaden revenue sources is the only way for miners. In addition, regarding the price impact brought about by the halving, various signals indicate that capitulation has come to an end. With strong support for machine prices and the cooperation of ETFs to absorb it, short-term adjustments are not something to be afraid of. Obviously, the reason for the sharp decline lies in market liquidity. sexual restrictions.

From an industrial point of view, the mining industry, which once occupied the top position for a while, has gradually moved away from the center of power of cryptocurrency. The richest people have also experienced changes in their survival. Where will the layers of history finally end? The context of cryptocurrency will also continue.

(The above content is excerpted and reprinted with the authorization of our partner PANews, original text link | Source: Gyro Finance)

Statement: The article only represents the author's personal views and opinions, and does not represent the objective views and positions of the blockchain. All contents and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and transactions, and the author and Blockchain Client will not be held responsible for any direct or indirect losses caused by investors' transactions.

〈When miners save themselves under the "sell-off wave", when will the price impact stop? 〉This article was first published in "Block Guest".