Been involved in Bitcoin mining for four years. In the Bitcoin mining industry and even the entire cryptocurrency circle, four years often means several cycles of 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 susceptible to macroeconomic and geopolitical influences).
There is a famous saying from Game of Thrones: Chaos is a ladder. Some people make money out of chaos, and some people just get chestnuts out of the fire and make wedding clothes for others.
However, the clouds are clearing and the moon is bright. Before the new cycle comes, the author will make a written record of what he has learned from four years of immersion in the industry for the benefit of all practitioners who have faith and move forward.
The Cyclical Phenomenon and Pseudo-“Decentralization” of Cryptocurrencies
When I first entered the industry, what impressed me most was the ever-fluctuating curve of Bitcoin. Volatility and cycles are fundamental features of the cryptocurrency industry, with countless tiny peaks and troughs charting price fluctuations like an electrocardiogram (and, no doubt, heart-pounding). Volatility tells us about instantaneous changes in investor supply, demand and confidence in Bitcoin, while cycles provide a historical perspective that depicts repeating patterns in the industry. Given that currency prices spiral upward in every cycle, the cycle itself has become a relatively optimistic expectation. Here, I would like to change what Keynes said. In the long run, some people will survive.
Assessing the value of Bitcoin cannot be separated from the long-term narrative surrounding it. The roots of these narratives are derived from the white paper released by Satoshi Nakamoto in 2009. It can be found that both the so-called "decentralization" (the technical practice of P2P) and the digital gold as a safe-haven asset (the deflation mechanism of Bitcoin) are based on a belief in "technicalism". However, it precisely ignores the role of human nature in technological diffusion.
Since the development of Bitcoin and its mining industry, the "decentralization" I see is a false proposition. The fact today is that as upstream mining machine manufacturers, after experiencing many rounds of technological innovation and evolution, they have become highly centralized. Bitmain, Canaan, and Shenma alone account for more than 90% of the market share. %; the distribution of mining pools is also highly concentrated, with the top five 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 transformed by a changing global economy and geopolitical conflicts. It requires each of us to return to zero, smash ourselves, give up historical experience, re-examine and learn with an open mind like a new person.
1. Mining machine products and development trends under the great changes. With the conflict between Eastern and Western civilizations, geopolitical influences, the rise of OPEC+, pressure from green extremists, continued economic inflation in the United States 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 will continue for a long time in the future. Therefore, energy-efficient machines are the best choice for future miners. In addition, on the one hand, criticism of the environmental pollution of Bitcoin mining is rampant, and on the other hand, extreme climate areas 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.
Generally speaking, the main factors to consider when measuring the development trend of mining machine products are as follows:
1. ASIC process: The chip mainly determines the performance of the mining machine. At present, the 5nm process of mining machine chips has matured, and the 3nm advanced process is being improved. With the technological iteration and design progress of mining machine manufacturers, the technology of mining machine chips has matured in both design and production. Today's major mining machine manufacturers can almost all easily use TSMC's advanced processes (5nm and 3nm). , Samsung (5nm and 3nm), and SMIC’s N+1 and N+3 to complete the design of energy-efficient mining chip. Judging from the chip production machines of these three companies, TSMC is undoubtedly the best in terms of yield and performance, followed by Samsung and latecomer SMIC. These wafer foundries rely on "harvesting" the R&D investment of mining machine manufacturers to complete the advanced manufacturing process of their technologies and processes. This is a kind of love-hate cooperation where no one can do without the other. The author even thinks that this is a "mistress-style love and hate that cannot be made public". Because wafer manufacturers have always shown themselves to be high-end consumer electronics and artificial intelligence (think of the public relations crisis caused by gamers protesting against Nvidia's "mining cards" and Intel's repeated failure to make mining machine chips without any success). Some fabs are unwilling to admit that it was actually the cryptocurrency mining machine business that gave them a blood transfusion in the early stages of research and development, allowing them to complete advanced process breakthroughs that relied on a large amount of US dollars.
2. Energy Efficiency Ratio (PE) will be the only competitive indicator: Throughout the fourteen years of Bitcoin, there has been a cycle of bulls and bears. In every bear market, when the currency price plummets, a large number of mining shutdowns will also lead to a fall in electricity prices. However, this round of bear market that started in mid-2022 is the first time in history that there has been a reverse development of falling currency prices and rising electricity prices. Coupled with the upcoming fourth round of block reward halving, in a sense, Hades There are signs of "killing" the mining industry. Of course, the development of mining machine chip manufacturing processes and the launch of energy-efficient machines have somewhat slowed down the "declaration of the death penalty for mining." 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. Miners (as long as they have money) will choose high energy efficiency. Mining machines, in today's market environment, are entry-level at 25J/T. To have a competitive advantage in the market, it is necessary to develop and produce mining machines around 20J/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 immersed liquid-cooled mining machines in order to better adapt to extreme climate environments and be friendly to human settlements.
3． Product parameters with competitive advantages in the next 6-12 months (before and after halving):
→ Products with competitive advantages
PE： 20J/T +-3%
Computing power: 160TH/s +-3%
Power consumption: 3200W +-3%
→Entry-level products in the market
PE： 25J/T +-3%
Computing power: 130TH/s +-3%
Power consumption: 3250W +-3%
→Other mining machines with poor energy efficiency ratios, such as those above 30J/T, will be shut down and eliminated. Even if it is sold to customers with extremely low electricity bills or electricity theft, it is uncompetitive. What's more, the market for electricity theft or "ultra-cheap electricity" is very niche, very unstable, and is also suspected of being illegal, so don't spend it. Manpower and material resources are devoted to such a market.
4. Why immersed liquid cooling is the form and even infrastructure of future mining equipment
The mining machine industry is facing two main contradictions. One is that the investment in the research and development of advanced process chips is getting higher and higher, often reaching hundreds of millions of yuan, while the performance improvements obtained are getting smaller and smaller. For mining machine manufacturers, this is a process of diminishing marginal returns on investment. For mining machine manufacturers, there is a need for technological paths to achieve better energy efficiency with smaller cost improvements. Immersion liquid cooling is the most thermally efficient technology. In this environment, it allows the machine to increase performance by overclocking without requiring a chip upgrade. The combination of immersed liquid cooling and containers occupies a smaller area, is more modular, has low noise, and can overcome the effects 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, but the block rewards continue to be halved. Therefore, for miners, this is also a process of diminishing return on investment, and only large miners can win. It can be seen that the integration of the industry will further intensify in the future. In turn, the integrated mining machine industry has more abundant funds and motivation to promote product iteration and mine construction, which provides prerequisites for the large-scale application of immersed liquid cooling technology.
2. Market and sales forecast: the relationship between supply chain, spare parts stocking and sales
Wafer and OEM: Generally, the mass production cycle of wafer 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% advance payment to lock in the wafer OEM. work. This has brought considerable cash flow pressure to mining machine manufacturers. Coupled with the unpredictable bull and bear cycle of Bitcoin, it has also increased the uncertainty of future sales and shipments for mining machine manufacturers. In order to solve this dilemma for mining machine manufacturers, only by making market predictions and sales strategies can we successfully avoid risks. The author believes that based on market conditions and supply chain conditions, it is necessary to control the proportion of spot sales, increase the proportion of futures sales, and continue to optimize the customer structure to reduce risks. The specific strategies are as follows:
1. Futures sales strategy: 80% of the production is used for futures sales, delivered after 6 months, delivered in batches every month, and monthly shipments are arranged on average. This strategy ensures balanced, efficient and sustainable operations of the production and supply chain. It can effectively reduce the cash pressure for 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 in the unit price and production capacity, and also ensures the large cash flow required by the mining machine manufacturer to purchase wafers. This strategy guarantees two things. First, it guarantees the cash flow required by mining machine manufacturers for normal R&D, production, and procurement. Second, it shares the risks of a possible bear market. Because 50% advance payment can almost cover the cost of the machine.
3. 2:8 principle of key customer strategy: As mentioned at the beginning, the decentralization of this industry is a false proposition. It is actually a highly centralized industry. In particular, the mining business requires a large amount of capital and technical support, which can be experienced Those who survive the reincarnation of bulls and bears are generally "big miners" who have technology, funds, and teams. They regard mining more for long-term strategy and business layout, rather than for short-term speculation purposes like retail investors. Therefore, large customers often have a strategic coexistence, win-win and mutual prosperity partnership with mining machine manufacturers, and are the mainstay of the cryptocurrency industry. Retail investors are at best filling in the gaps in the layout of mining machine manufacturers, because the life cycle of retail customers is too short. , the liquidity is too strong to maintain long-term cooperation. According to the author's observation, in the past five years, few retail investors have been able to survive a quarter. In the early days of the industry, with the exception of 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 equipment companies have gradually established strategic key customer systems based on international key customers. Customers include well-known established mining companies and emerging US listed mining companies. Established mining companies such as Genesis , Hut8, CoreScientific, Bitfarm, Bitfury; and emerging listed companies such as HiveBlockchain, Mawson, IrisEnergy, Marathon, Riot, etc. The sales revenue from major customers accounts for more than 80% on average, which is a solid revenue base.
3. Sales operations and sales management
1. Market forecast: Generally speaking, sales operations must prepare a rolling forecast every three months for the next 12 months. However, it is not easy for the Bitcoin mining machine industry to make such a sales forecast, and its regularity is irregular. Absolute predictions are impossible, but basic predictions can still be made. For example, by combining futures orders and market trends, it is possible to predict rolling sales every three months. Since the production of mining machines starts from wafers to products, the supply chain is particularly long, which requires sales operations to have professionalism and the ability to grasp the market, so as to make predictions as accurate 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 consider channel inventory and mining demand in the next 3-6 months. Factors such as airport slots and power resource supply, currency prices, electricity prices and the computing power of the entire network. In terms of pricing, generally speaking, miners with a payback period of 12 months to 18 months are competitive prices. Those aged 18-24 months are average, and those aged 24-30 months are basically not easy to sell. Most miners have a speculative mentality. On the one hand, they just want to make quick money. On the other hand, they are unable to predict the mid- to 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 a top priority. In a normal mining environment, time is BTC, so stable and rough-resistant machines and timely after-sales service are also important options that miners consider when purchasing.
4． Sales reports and CRM: This industry is different from traditional FMCG or traditional IT industries, and is more like a financial-like speculative industry. Therefore, sales analysis can only be a true reflection of current data, and it should not have much reference significance for history and the future. On the contrary, data such as currency prices, mine locations, 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. Long-term customers are mainly a dozen KA customers, and most small and medium-sized retail investors died before the "dawn of the bull market."
4. Channels: opportunities and risks coexist
Any industry, whether 2B or 2C business, is inseparable from "channels". Taking the fast-moving consumer goods industry as an example, some people once thought that channels were king, mistakenly believing that if they had channels, they would have everything. Dealers and agents often At the speed of masturbation, the brand's commercial products, brands and services have firmly attracted consumers and given channel dealers a hard slap in the face. In the fast-moving consumer goods field, channel dealers have been educated and mature. After nearly 20 or 30 years of development and management, channel dealers have given up the arrogance of the early self-righteous channel as the king. Today, they have almost become "willing" brand owners. Nowadays, the low profile of quietly getting rich under the banner of brand owners has become their normal state and outlook on life, echoing the old saying: Make money silently. However, looking back at the development of the 2B industry, channel dealers are developing in an increasingly professional direction. They not only need to expand channels, provide pre-sales, during-sales and after-sales technical support, improve solutions, but also have strong funds to stock up on goods. It is true that such channel operators also have more say and decision-making power. It is precisely this "desire for power" that achieves their ever-changing "ambition", often unknowingly disrupting the channel strategy, price strategy, inventory strategy and customer management strategy of the brand owner, and inadvertently becoming the opposite of the brand owner.
1. A channel is like water that can carry a boat or capsize it:
Channel management is a complex management art. It is not a cold channel, but more about the understanding of human nature. The game of desire expectations between brand owners and channel owners is also a touchstone of the human nature of sales staff. When brands are in a weak position, channel operators will maximize their own interests regardless of the interests of the brand and customers, and quickly harvest all the benefits that can be harvested. The short-term speculation is very clear. In this case, regional/channel vendors often dump each other to grab customers and lower prices, causing the brand owners themselves to be unable to ship normally, resulting in high inventory pressure and chaotic market prices. There are constant complaints from customers outside the company, and there is internal competition among salespeople. Brand owners are kidnapped by channel operators, not only losing profits but also offending customers. When channel dealers are in a weak position, brand owners often accuse the channel dealer of poor expansion and delaying business opportunities. Looking at the development and routines of mining channel dealers in recent years, we can see that the strategies they use very skillfully are to close the market in the bull market, play cards and drink, and explore the bottom in the bear market to cut the leeks of mining machine manufacturers.
(1) Bull market: Do not participate in the competition for relatively high-priced mining machines at this time, just sit on the sidelines and enjoy eating, drinking, and playing cards with friends. If you have the opportunity, you can make a move and quickly change hands to make a profit on the price difference.
(2) Bear market: From time to time, the mining machine manufacturers who are under the dual pressure of inventory and cash are teased, and the mining machine manufacturers are tricked into signing a "so-called secured installment payment contract", but The down payment ratio is very low, but it locks up the price and production capacity of mining machine manufacturers. Then they turn around and place an order in the market, add a little more price (their price is lower than the official price of the mining machine manufacturer), and resell the machine or even resell the contract. The result is that the market price is chaotic. As long as the channel dealer's inventory machines or the machines on the contract list are not sold out, the mining machine manufacturers' inventory cannot be sold, because the price and shipment are completely controlled and kidnapped by the channel dealer. The channel dealers made money, and the mining machine manufacturers were cut off.
2. Looking at the chaos of channel management in the mining machine industry from several leading manufacturers:
(1) In the bull market, mining machines are in short supply, and miners and agents are hard-pressed to find one. On the one hand, leading manufacturers keep their maximum sales profits in their exclusive sales companies. On the other hand, sales or agents increase prices layer by layer, and sometimes pay Contributes to bottom-level rebates. What we see from the market is that prices are opaque and overpriced. Customers have a very poor sales experience and a very bad reputation for integrity, leading to the loss of large customers.
(2) During the bear market, due to the pressure on channels to stock up in the early stage, once the bear market comes, agents panic and choose the "best option" dumping strategy, resulting in instant market price chaos. Miners and channel dealers demand mining machine manufacturers in desperation. Refund the money and issue coupons to make up for the loss. If manufacturers have sufficient cash, they can actually accept refunds to make up for the difference, but the problem is that when the bear market comes, who has extra cash? Who doesn’t want to save a little extra cash for the winter? What's more, the initial receiving prices of miners and channel dealers are not necessarily all first-hand manufacturer prices. Since the bear market this year, channel dealers have turned against each other collectively and have repeatedly staged lawsuits.
(3) A large amount of channel inventory is overstocked, and price dumping is imminent: According to incomplete statistics, there are currently about 1 million units of channel inventory on the market, including inventory that has not been launched by agents and mining companies. With the continuation of the bear market and the imminent halving, Coming soon, the iteration of the new generation of mining machines will be completed, and the current channel inventory machines will soon become scrap metal. In order to reduce losses as much as possible, leading manufacturers will cut off the price of their products and dump them in a timely manner. In this round, if some leading manufacturers can sell at bargain prices in time, 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 develop a faster and more ruthless sales and pricing strategy, a precise price sniping strategy.
3. 2B business model: large customer model vs. individual customers and retail e-commerce:
(1) Mining machine sales are a simple 2B business. Big customers bring big sales, and the customer’s professionalism is the fundamentals. E-commerce retail and e-commerce are just picking up the slack. Some mining machine manufacturers are wishful thinking about retail and e-commerce, thinking that they can support the company. In fact, no matter whether Bitmain, Shenma or Avalon, 80% of sales come from less than 20% of large customers.
(2) Communication and service costs between major customers and retail customers: Major customers have professional operation and maintenance and engineering teams, and after-sales services and updates are all handled by dedicated personnel, which is efficient and labor-saving. Individuals lack a team, and often a small firmware update or a power outage or power-on requires a lot of after-sales engineers from the mining machine manufacturer. They often just don’t understand it and end up complaining to the manufacturer. For manufacturers, it’s a thankless task, the business is not big, and services are 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 relied on thermal power and hydropower during flood periods. The electricity cost and operation and maintenance cost of mining were very low. 10,000 machines were deployed and 3 people were employed. -Five rural children who graduated from high school can take up the job with a little training and maintain the operation of the mine. Therefore, China’s mining industry has a very large competitive advantage. At one time, China occupied 70% of the global computing power of the entire network. The miners during this period were basically the first batch of Bitcoin adventurers and crab-eaters in China. They were either keen speculators with some spare money, or technical men involved in blockchain and BTC. After several rounds of bull and bear reincarnations, this group of miners gradually became basically fixed. There are only a few large miners in the country and they are quite concentrated, just like mining pools and exchanges. The nature of mining determines that miners must obtain the most Bitcoins at the minimum cost, so stealing electricity and low-priced electricity are their first choices. Therefore, the relationship with local officials has also become an important part of the interests, and it is often a trap. It was so angry that the Chinese government later introduced policies to combat corruption and green carbon neutrality, and it also eliminated mining activities in various places.
2. On September 3, 2021, "Eleven departments including the National Development and Reform Commission jointly issued a document to rectify virtual currency "mining." Then on September 24 of the same year, ten departments including the central bank issued the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions" 》, which directly blew up the currency and mining circles in China. When they woke up, the first move they made was to "move the platform and employees overseas" and "dismantle and ship the mining machines to Kazakhstan, a friendly country in Central Asia on the border of Xinjiang."
(1) Kazakhstan not only has cheap electricity bills, 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 3 months, from October to December, Kazakhstan’s Bitcoin hashing power increased to 30% of the entire network’s hashing power. It went from being unknown to becoming the second largest contributor of hashing power in the world. . The miner structure during this period also changed accordingly. In addition to Chinese miners, Kazakhstan energy-based participants were added. However, the good dream did not last long. On January 6, 2022, riots broke out in Kazakhstan, shattering the dreams of all Chinese miners, and also shattering the short-term dream of getting rich for the Kazakh miners who had just tasted a little sweetness. Since then, Kazakhstan’s mining policies, tax policies and electricity bills have embarked on a path of self-inflicted trouble. A large number of Chinese miners immediately fled Kazakhstan, carrying machines and Bitcoins on their backs and traveling through the night, rushing straight to what they thought was the next golden land - the United States.
(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. They invested heavily in the United States, especially in Texas, to increase leverage on Bitcoin financing and build mining farms. After buying a mining machine, mining companies in the United States sprung up like mushrooms after a rain. During this period, a large number of Chinese miners poured in. In just a few months, the computing power of the United States reached the top in the world. During this period, the structure of miners added institutional investors with Wall Street backgrounds and a number of listed mining companies. At this point, the United States has completed all strategic engulfment from Bitcoin’s bottom-level mining to upper-level exchanges. The Bitcoin Kingdom strategy that combines global computing power, global exchanges and global mining pools to dominate the world. At present, the only thing missing is that mining machine manufacturers have not been "cheated/forced" to the last step of 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 established mining companies and emerging NASDAQ listed mining companies. Among them, the best-run mining companies are the old-line mining companies. They have survived through ups and downs. The main reason for this is their understanding of the industry, their control of risks, and their timely prediction of the cycle of bulls and bears.
6. Mining business and strategy
1. Three major risks in mining business:
(1) Risks of policy and regulatory transactions: Looking at domestic and foreign countries, mining business is a high-risk business. Uncertain 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 dirty currency risks, etc.
(2) Risks of electricity price and power supply: Electricity price is the most basic factor in whether mining is profitable and whether investment recovery is fast. Maintaining stable and low electricity prices is the only way to make the mining business profitable. In addition, stable power supply and 24/7 power supply are also key factors for stable profitability.
(3) Risks of partners: The high profits in this industry often arouse the greed of human nature. To avoid the risk of partners "taking advantage of others", you need to avoid dealing with short-term opportunists, speculators, strangers and others. Customer cooperation mining business.
2. Selection of mining business partners: three types of partners
(1) Resource-based customers: They are well-known local companies and entrepreneurs who own energy resources, social status and honor. Such customers are not willing to break laws and regulations, and they will not take advantage of small profits. Often such customers can also help mining machine manufacturers establish some local government relationships, which is beneficial to the expansion and sustainable development of the mining business.
(2) Emerging listed companies (customers): North American mining listed companies. They are standardized and professional, have mature technology, efficient operation and maintenance, and financial compliance. They have institutional investment behind them and have abundant funds. They focus on reputation 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 currency circles 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, specializing in settling small accounts, and are industry old Koehler who are short-changed. If you cooperate with them, you will easily be taken advantage of. Of course, you can also train your team and improve the self-operated mining operation and maintenance and management capabilities of the mining machine manufacturers.
3. Why start a mining business?
(1) In the bull market, the mining business can continuously bring cash (BTC) to mining machine manufacturers every minute and every second. Like a banknote printing machine, it can enable the company to quickly increase its revenue volume and increase its market value and diversification. value of business operations.
(2) In a bear market, the machine price may fall below the production cost. It is better to sell the machine than to put the machine into a mine for self-operated mining. On the one hand, it acts as a shock absorber for the supply chain and maintains normal operations 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 machines and mining business together to make greater profits, or 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 into a high-end business model of computing power sales and computing power securitization.
4. Where will the mines be in the future?
(1) There are various current signs that the US government is killing cryptocurrencies. In order to maintain the dominance of the US dollar, they are systematically killing Bitcoin trading platforms (FTX, Coinbase and Binance are the best recent examples) In addition, in the past year, states in the United States have introduced many unfriendly policies for mining (construction environmental impact assessment requirements, electricity prices, taxes, etc.). The author believes that in the near future, the U.S. government will "close down" mining companies. "Dogs" are slaughtered in one go. The approximately 3,000MW mining farms currently in the United States will be culled overnight, and there will no longer be Bitcoin mining in the United States. In short, the U.S. market will cease to exist. It would be very dangerous to continue to expand into the U.S. market now, and building mining sites in the U.S. would be an unwise decision with high risks.
(2) Kazakhstan: A typical Central Asian government management model, with corrupt bureaucrats pretending to understand and doing their own thing. Since the turmoil in January 2022, the government has successively introduced a series of unfriendly policies aimed at mining and trading, directly destroying the prosperous mining industry in Kazakhstan, which has been ranked second in the world. Accounting for 30% of the entire network's computing power, it is reduced to less than 5%. The author is curious, did Kazakhstan want this ending today, or did the US government instigate Kazakhstan to do this?
(3) South America is the next choice for mining: abundant water and electricity, cheap electricity prices, cheap sites, and currently relatively friendly policies. 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 venues, and friendly policies. Liquid-cooled machines are more efficient and better able to withstand extreme climates. The disadvantage is that the annual power supply efficiency is less than 70%, various resources are highly monopolized, and "the traditional Arab business etiquette is lengthy."
(5) Northern African countries: rich in power resources but lacking in industry. Mining is the best industry to rapidly develop the local economy and can receive strong support from the current government. The risks are political instability and poor security. Recently, countries with abundant hydropower resources and cheap electricity prices include Ethiopia.
(6) Russia: It has abundant power resources, the mining industry developed earlier, and there are a large number of very mature practitioners. The disadvantage is that Russia is subject to US sanctions, the business environment is not good, and the spirit of the contract is not good.
(7) Iran: Let’s 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: globalization and local strategies must be pursued with both hands.
The world economy has developed vigorously under the development of globalization in the past 30 years. In particular, developing countries led by China have benefited a lot. Their economy and science and technology have grown rapidly, and they have become the beneficiaries of globalization. Since China banned the mining industry in 2021, North America, Central Asia and other regions have increased support for mining. Sichuan, the "mining capital" popular on the Chinese Internet, has also given way to Texas in the United States. Various mining machine manufacturers are looking for 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 the implementation of the globalization strategy and how to take the globalization path?
1. Grasp with both hands and be strong 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 global and have a solid foundation. Globalization will have talent reserves, economic support and material foundation. Otherwise, even if it is forced to go global, it will be short-lived and short-lived, and it will be called a "red apricot coming out of the wall" at best.
2. The path of globalization: Looking at China’s economic development in the past thirty years, in the traditional physical field, except for the photovoltaic industry, most Chinese companies are limited to the export of cheap labor services and goods, and it is rare for products and companies with technological originality to go overseas. In the field of Internet and communication equipment, some of the more successful benchmarks for overseas expansion in recent years include Huawei and Transsion Holdings, as well as entertainment companies represented by ByteDance and MiHoYo. The uniqueness of the mining machine industry is that, no matter how much it is questioned, it represents a combination of high-end manufacturing and emerging finance to a certain extent. In the past many years, due to the high degree of monopoly in the industry, mining machine manufacturers have been limited to exporting products overseas, and their supporting service capabilities have lagged behind. At the same time, the periodic switching between a strong seller's market and a strong buyer's market leaves mining machine manufacturers with insufficient motivation to build service capabilities. However, after 2021, with the rise of institutional customers, mining machine manufacturers have gradually realized the importance of service.
At present, some mining machine manufacturers have begun to build service stations 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 a team based on local conditions, and being familiar with local laws and regulations, work habits and culture to maintain long-term customer relationships, so that a moat of service capabilities can be gradually built. These are not achievements that can be achieved overnight. It takes continuous steps to replicate the successful management model and business model. 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 witnessed with my own eyes is that some companies have flourished everywhere, and their nomadic model of racing and enclosing land will eventually exhaust their resources and fail.
3. The U.S. government and cryptocurrency: The U.S. government has a complicated relationship with cryptocurrency and has obtained a large amount of Bitcoin by strangling the “Silk Road”. The anonymity and black trade of cryptocurrency, as well as providing funding channels for countries on the sanctions list such as Iran and Russia, are not allowed by the U.S. government. They will not tolerate challenges to the dollar's hegemony, just as they are unwilling to accept China's peaceful rise. After a series of explosive 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 TEDA executive revealed not long ago that they will allocate a fixed ratio of their annual profits of US$4 billion to purchase BTC. At the same time, they will also expand their mining business and invest several billion dollars each year. billion to support computing power support and the motivation of mining machine manufacturers. From this point of view, TEDA has become a rare Don Quixote in this industry. The author would like to make a bold assumption here. In the context of a run frenzy sweeping crypto-friendly banks, TEDA's ambition may be to act as the "Thai Fed" of the crypto industry and completely secure its status as the leader of the world with a key bailout.
8. A little speculation about the near future
The development of Bitcoin cannot be controlled by one government or one institution, especially today and in the future, the conflict between Eastern and Western civilizations, geopolitical conflicts, monetary hegemony and monopoly conflicts, energy tensions, and the new Cold War under deglobalization, etc. Wait, the world may need cryptocurrencies more, especially Bitcoin.
The cyclical reappearance of “institutional bulls”
From 2010 to now, Bitcoin has been unilaterally declared "dead" 474 times (see 99Bitcoins), which is enough to show that Bitcoin is an invincible little power. What the author has observed is that after a series of thunderstorms, Bitcoin has shown signs of resurgence. The US government and institutional investors often have their own way of dealing with Bitcoin. In the view of the US government, the hegemony of the US dollar is the core, and Bitcoin is at most a black glove, and there is no way to clean it up. In the eyes of the organization, being able to cut leeks is the most delicious thing. BlackRock, the world's largest asset management company, personally launched a Bitcoin spot ETF, and its application record for ETFs is also a success. If successful, there is a high probability that we will still see the grand occasion of institutional bulls in 2021 in the near future.
The entry of institutions will further promote changes in the funding structure of the Bitcoin industry. In the early years, the currency and mining circles were basically full of gambling speculators, who often made a lot of money or lost everything in the short term. Therefore, the industry has always been dominated by a few people who "make money silently". In late 2018 and early 2019, institutional investors from traditional Wall Street financial funds, family funds (old money), and companies with traditional energy background gradually entered the market. The composition of the industry is gradually changing, old money enters the market, and the currency price also changes. Start dancing with Wall Street. Of course, this also means that Bitcoin will be less volatile.
Bitcoin’s “surname” is not important, making money is important
As for the compliance of cryptocurrency, it has always been volatile, with the SEC and CFTC at loggerheads on a daily basis. In recent days, U.S. senators will introduce a new revised version of the encryption regulatory law to expand the powers 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 issue of Bitcoin's surname will be put aside for the time being. At present, the inflation in the United States is not low, the U.S. debt is high and there is no one to take over, and the credibility of the U.S. dollar is further damaged. Silently tossing coins is also one of the measures taken by the U.S. government to recycle dollars and boost confidence. Therefore, in this context, it remains to be seen whether the compliance of cryptocurrency is true compliance or old wine in new bottles. However, a new generation replaces an old leek, and as long as the liquidity is still there, the music and dancing can continue.
Asia still cannot be ignored
In 2021, China put a heavy hammer on Bitcoin. Two years later, the United States sued Binance and Coinbase, several major exchanges. Now China has acquiesced in Hong Kong's support for Web 3.0 and cryptocurrency. This shows that governments around the world have ambiguous attitudes towards cryptocurrency. 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 financial leader. Singapore and Hong Kong are competing against each other. In the ongoing competition for funds, the biggest winner is definitely cryptocurrency. It is worth noting that in June 2023, Japan’s “Amendment to the Fund Settlement Act” was voted by the House of Lords, becoming the first country in the world to enact a stable currency bill. In the foreseeable future, Asia will remain an important pole in the cryptocurrency industry landscape. In addition, amid the global economic downturn, more and more governments in small countries in Africa and South America are also opening up.
Under the new Cold War, 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% to 55%. On the hidden front of cryptocurrency, China and the United States may both support their respective centralized exchanges to attract overseas funds and take measures if necessary to prevent large-scale capital flight.
In Central Asia, Kazakhstan has always received the most attention. In 2021, the country suddenly became the region with the fastest growing hash power, and then fell sharply due to power shortages and policy reasons. The Kazakhstan government has collected US$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 US$541,000. If this standard is followed, it can be extrapolated to 2023 The tax collected for the whole year was only about US$1.62 million, which was mainly due to the policy blow to the country’s crypto 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 on illegal mining and crypto-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 mainly depends on how much benefit the country's government can obtain from it. What the author sees is that the country subsequently plans to introduce new regulations, including miner licenses, the use of licensed exchanges and mining pools, etc. These measures will further reduce tax evasion and improve industry transparency, rather than driving mining out of the country. The current sharp drop in mining tax revenue also shows that the country's mining industry needs a period of recovery to rebuild capital confidence. In addition, improving the efficiency of electric energy use requires the introduction of more advanced machines and equipment, so in the future, the country's government may see some relaxation in the value-added tax on the import of mining machines and digital mining taxes and fees.
Green Mining: The “Certificate of Investment” that Bitcoin Mining Must Submit
After the last "encryption winter", the Bitcoin mining industry entered a period of consolidation. The current situation faced by Bitcoin mining: 1) Political correctness: issues regarding the sustainability of Bitcoin mining under the carbon reduction framework; 2) Funding sources: Bitcoin ETF is a double-edged sword for the mining industry, and the launch of ETF will undoubtedly increase the price of the currency. Prices help miners earn profits, but ETFs provide institutional investors with zero-threshold deposit channels. In this case, who will spend effort on large-scale mining 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 for AI.
Today, in the face of the powerful US government, Bitcoin mining cannot "enclose itself". If you want to live a decent life, you must be a little "green". First, there is the issue of mining sustainability. 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 financial resources and deep government relations can survive. At present, listed companies in the industry have taken action and established the BMC Mining Association to regularly disclose operating data. These companies also need to form professional lobbying teams to clarify the continued optimization of the crypto 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 North America, such as Northern Europe, and are increasing their efforts to 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 not exempt from it. They might as well establish an organization similar to a green foundation and allocate some money every year as a "certificate of investment" to American decision-making elites in order to pursue their goals in the future. Greater voice at the legal and public levels.
