We have witnessed the extremely bearish BTC price these months and it has now slipped below $20,000. According to F2Pool, most mining rigs have reached ‘shutdown price’ due to the current mining difficulty and power costs, including the well-known Sleipnir M21 and Avalon 1066Pro. Other mining rigs such as Ant T17 ($18,953.05), T17+ ($17,337.73), Avalon 1146Pro ($17,919.25) are also gradually approaching the tipping point.
On June 24, BOOM Talks 3 started the topic of miners’ survival. The event was hosted by Jeffrey, CMO of BOOM, and Joshua, Head of 6block ’s e-business has been invited to the talk among the following guests.
Jackey Lin: FlashMining CEO https://twitter.com/Jackey_Lin2008
Jessica: Former F2pool CMO, Emining Co-founder https://twitter.com/Jessica11252
Joshua: Head of 6block ’s e-business https://twitter.com/joshuagoing1
Full episode: https://twitter.com/i/spaces/1rmxPgYrEgEJN?s=20
Here comes the recap:
Q1: About the ‘shutdown price’ of BTC & ETH
Joshua: The shutdown price has not hit the bottom yet. Some people are still mining out there with a low profit. Whether a mining rig needs to be shut down depends on its electric bill. In a place like Angola, Africa, miners can still survive. I believe the so-called ‘shutdown price’ is set for new machines, such as the S19 since people who own these old machines have already got even several times.
Jessica: I feel quite negative about the situation. The electricity price in North America is around $0.08, plus we need to consider the local taxes, which makes the total power cost rise to $0.086. Some of Avalon’s mainstreams, including some of our own similar machines, have already been shut down in the current situation.
Jackey： The data is calculable. When Bitcoin price falls to $20,000, the hashing power should fall to about 170E. And when the price drops to $10,000, I think the net-wide hashing power may drop to 100EH/s, where only S19 and M30S can survive. At that time, with a doubled output and the 8 cents cost for electricity, the shutdown price of S19 and M30 should be around $5000–6000.
Q2: The direct cause of the ‘mining crash’ is the extremely bearish Bitcoin price, what are the indirect causes?
Jessica: There are two things that affect miners’ earnings, one is your electricity bill, and the other is the difficulty adjustment. Bitcoin’s difficulty adjustment cycle is 12 days. It’ll decide on the next stable period based on the hashing power and then allocate rewards to miners. This is different from Ethereum, which is more flexible with a shorter adjustment cycle.
Jackey: Firstly, there’s the policy factor. The electricity cost in Xinjiang is ¥0.35 during winter. To build your own mines in Sichuan, the electric cost will be ¥0.12–0.15 in summer; and ¥0.2–0.25 yuan if you choose to be managed. The shutdown price might be lower if it happened in the previous year because the energy is cheaper. Second, about the global situation,the Russia-Ukraine conflict has led to a global energy price rise.
Joshua: Electricity prices and the price of BTC are the main factors. The hot topic in the Mining industry is basically about cost. In a bull market your calculation on the cost can be loosely controlled, but in the bear market, people will be fine-tuned to save the cost, even the cost of operation and maintenance would be counted in.
Q3: Unlike BTC, ETH is now facing a major adjustment from POW to POS, so what is the way out for this part of the miners?
Jessica: In the future, this mining machine may turn to ETC, RVN etc., but the situation is not that optimistic. The hashing powers overwhelm these small currencies.
Joshua: As Jessica said earlier, people are actually prepared for this to come. People would choose to mine small-capped tokens after being abandoned by ETH. While the small-capped tokens are saturated, some of the miners will be disused. Part of the GPUs will be resold but there are still others left — they will wait and see if there’s a potentially good project for mining. Therefore, promising projects will be sought after by the mining market.
Jackey: This data can actually be quantified. ETC is the second-largest GPU, now it’s in the 20T level, 45 times less than ETH. It’s an overwhelming number, and there’s almost no chain that can handle the 900T hashing powers. You may need an economic model to set some limitations using GPU mining, such as locking or staking mechanisms, rather than attracting all the mining power into a token. Besides, many GPUs will be resold back into the gaming market, so the price of the GPU could go down further.
Q4: There’s a saying that ‘Miners’ capitulation is a typical sign that the market has bottomed out?’ What do you think?
Jessica: Right. If you look back at the first two crises, you can see that most machines were shut down and basically the whole market was at a freezing point. Miners stopped mining, people stopped talking about cryptos, and the whole industry sank. Some smaller companies were probably eliminated from the market, these are all signs of a bottom. We believe that’s already a super difficult time when POW miners alone are involved in the network because guarding this network is costly, and the cost is partly from energy, partly due to maintenance, and partly under the pressure of crypto price. This is indeed the case of a capitulation. But when a large number of miners shut down, the industry basically bottomed out. People who either have ultimate faith or very good resources can survive.
Jackey: We used to joke that If no one would attend those annual blockchain conferences, it would be basically the bottom. If people keep coming,then things are not the worst case. I mentioned a viewpoint before, it’s called ‘the three axes of the bear market in the mining circle’ (i.e., the three pillars to survive the bear market). First, low-power chips. In this bear market, you may need machines with a low power consumption ratio like M30 or S19; Second, cheap energy. You are mining in places like Angola or Fengshui, Sichuan, where the cost of electricity is low. Third, hedge at an early stage. You hedge yourself at relatively high price levels (say $30,000, $40,000). These are the three keys for miners to get through a bear market, and you can get past any one of them.
Jessica: ‘Hedging’ may be unfamiliar for some people. Usually, miners will do a 6-month to 12-month cycle to hedge their electricity cost in advance. Hedging is a strategy when the market is going bearish, that is to say, in the future, I may believe the price of the currency will go down, so I’d sell my cryptos at a relatively high price. In this way, I secured some profit at that time that could cover the cost of electricity for the mining.
Jackey: In fact, this is the traditional sense of ‘hedging’ in most cases. You can go to the futures market and open shorts, or long put options, or mortgage a miner to borrow BTC and sell it in the spot market …… There are many ways to achieve the result that I just described. This is something that is derived from the traditional financial markets.
Q5: There have been some incidents of liquidation on high leverage in DeFi. And we all know many miners choose to do collateralized lending or to lend out liquidity. Do you think they're gonna be some similar incidents in Mining?
Jackey: No, they are the complete opposite of logic. Staking ETH to borrow USDT, your collateral is floating. When the price of the currency is falling, your collateral is depreciated, but the USDT you borrowed is not. So when your collateral is almost close to the value of the USDT you lent out, it will be forced to close out. And the reason the collateral hedge I just mentioned won’t blow up is you’re collateralizing the asset itself, the miner, and its capacity. So when the token price is falling rapidly, your ability to pay back becomes stronger. Because at that point, the number of bitcoins you generate per T is going up. It is the opposite of the collaterals in defi.
Jessica: There is actually another difficulty. If the site belongs to a third party, this operation would be difficult considering the cross-border policies.
Jackey: In the past, many lenders are mining pools or financial institutions, they’ve got their own mining farms and large numbers of cryptos, so they actually have control over the resources, so the operation is relatively easy to work out. Now it’s an international business, the operation is much more difficult.
Q6: What impact does this round of mining crisis have on the Mining and the development of crypto?
Joshua: Not much. Mining has slowly been isolated from crypto. Now the financial attributes of crypto are getting stronger, and there are more creative products out there, but Mining is still in its old-fashioned way. So it’s fair to say that the impact on the mining industry is limited, it’s the other way around.
Jessica: In fact, traditional institutions are gradually taking over the current miners, especially from small to medium-sized farms. And this round of rapid decline does not have a big impact, and after the reshuffle there’s better stability in the long run.
Jackey: This mining crisis has no effect on Mining and future crypto. The price of the cryptocurrency will affect mining, but mining doesn’t affect the entire bitcoin community no matter how many miners survived, so it’s a one-way logic. However, the mining circle is again very influential to the entire cryptocurrency. When you look at it the bear market, the market share of BTC accounts for more than 50%, you see this time the miners take 50%-70% of the market share.
Q7: Thoughts on future BTC mining after the crisis.
Joshua: Personally, I don’t pay much attention to BTC as I’ve always felt that the whole business model of mining is still relatively traditional.So when Bitcoin is slowly declining, it’s just a matter of finding a new direction. We choose mining because of the stable cash flow, although now it is a bit hard as it requires maintaining the general stable operation.
Jessica: This question is actually about why do we want to mine? In fact, mining investment can be seen as a long-term option. You’re bullish on BTC if you invest in mining. Besides, it’s a way to do long-term fixed investment. For another, it is an easy calculation, things are all measurable, you know exactly how much you spent on electricity, and how much crypto you expect to mine at what time.
Jackey: I don’t recommend mining in the bear market if you don’t have enough funding. There’s a chance that more than 80% of your funds would be used to pay the electricity bill. So the questions about ‘how do you see the production getting smaller after the bear market, how will miners live after that?’ It’s really just a mathematical game. Let’s see these two curves. One is the increase of BTC price, 4 years as a cycle, and the other one is the decreasing production of BTC. So the question you asked shows that you only see a downward curve, but missed another curve where the price is going up.
Second, people in crypto are always asking if I can figure out how much it costs to mine a BTC right now. But no one can tell. Some people mining a year for a BTC, some mining for two, its amortization is not the same.
Q8: How do you see the transformation and future of mining?
Jackey: In the time dimension, there may not be a transformation for Chinese miners, people just sell their mining rigs. And going abroad is an option. But to leave the original circle of life and live in another country, you don’t know their language and the asset’s security is a problem, in Angola for example, it’s very complex.
About the future, I think it’s optimistic in the short-term, but pessimistic in the long run. Mining period has probably 3 years left. The global political environment is pretty tense, plus the coronavirus led to a bigger rise in energy prices. Governments around the world will be unfriendly to mining, leaving miners with absolutely no respite.
In democratic countries, with short-term compliance and slow policy response, miners still have 3 years of prime time. But after that, mining will become a more “decentralized” thing.
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