Bitmain's three-line axe bets halving the market, and the mining industry behind the gamble needs to turn around?

Editor's Note: The original title was "Mining Gamble"

On December 11th, a Weibo user named "WinterCoiner" posted his calculation and analysis of the halving of bitcoin prices in the next year, causing people in the circle to pay close attention to "mine gambling" and "mine disasters".

This user's point of view is that according to the current trend of increasing computing power, if the currency price does not rise next year, the halving of the revenue brought by the halving of Bitcoin production will make it difficult for miners to persist and eventually lead to super mining difficulties.

Information source: Weibo

In this regard, Jiang Zhuoer, the founder of Leibite mining pool, stated that "Bitcoin computing power is limited by the three factors of mining machine performance, electricity price and currency price. The entry and exit of computing power is the result of a comprehensive game of all aspects. (Mineral Circle) Not gambling. "

In other words, changes in miner income, network-wide computing power, and mining difficulty are a dynamic adjustment process, and the network-wide computing power will not grow at a high speed, and mining difficulties will not come.

It is true that the probability of a mine disaster is very small , but it is true that the mine circle is laying a bet on halving the market next year.

On December 7th, mining machine manufacturer Bitmain held a customer thank you meeting and disclosed the "mining machine promotion" strategy at the meeting. The three payment methods of down payment + tailing mining machine sales, put options, and joint mining were linked. Some media said that The mainland has added financial leverage to mining, and "the mining field has since entered the era of leverage."

01.Bitmain 's triple-axe bet cuts in half

On the afternoon of December 7, Bitmain held an annual customer appreciation meeting in Chengdu, the capital of mining. At this meeting, in addition to Wu Jihan's official return as a highlight, Bitmain also threw a blockbuster on the "new mining machine sales model." The sales model of this mining machine has been referred to by some media as Bitmain's "three axes."

A. Bet halving the market and funding sustainability

The two boards in this "three-board axe" are Bitmain's bet on halving the market next year and its own ability to sustain funds.

According to the "Crypto Valley Live" report, Bitmain believes that the price of bitcoin will rise sharply with the capacity halved, so the company plans to assume a lot of operational risks from customers.

Put option

Bitmain offers put options for large customers with orders above 10 million. The option product is the "Bitcoin 2020/3/27 35000 CNY put option", which is a product purchased by Bitmain for customers from Matrixport, a new company specializing in financial services, with a purchase limit of 1% of the customer's order amount.

Each time a customer holds an option product, they can sell one bitcoin at the price of 35,000 yuan on the exercise date of March 27, 2020. In other words, on the exercise day, no matter how much the price of bitcoin has fallen, some bitcoins in the hands of customers have a pocket price.

Bitmain ’s move can be said to be more than one stone: Put options are the bottom line for customers, and customers ’willingness to purchase mining machines will rise; fostering the awareness of miners using financial instruments to hedge mining risks can promote the cold start of Matrixport financial products; On the premise of this, I have arranged a channel for acquiring Bitcoin at a low price in advance for myself.

Obviously, Bitmain has passed part of the risk of loss to miners, and the starting point of this series of dominoes is the Bitcoin price. In the absence of a significant drop in the price of bitcoin, and the fact that bitmain's own funds are sufficient to cover the losses of miners, there will not be a big problem. Situation of loss of funds.

In order to add more insurance to this behavior, some analysts believe that Bitmain will buy put options in the market or use financial instruments such as futures to further hedge risks.

Joint mining

In the "joint mining" model, Bitmain conducts one-year cooperative mining with the mine. Bitmain provides the S17 series of mining machines, and at the same time pays the annual mining electricity fee at the price of 0.35 yuan / degree. Responsible for providing mine and operation and maintenance costs.

In the distribution of revenue, if the revenue is greater than the cost of electricity costs, Bitmain will receive 75% of the net revenue and the remaining 25% of the mine; if the revenue is not sufficient to offset the cost of electricity costs, no revenue distribution will be performed.

There are many benefits to cooperating with mines for mining: first, the cost of self-built mines is eliminated; second, these cooperative mines are likely to develop into potential customers; third, in the case of rising currency prices, Bitmain can obtain considerable capital flow in this way, but if the currency price is not performing well, it will lengthen the cycle and bring pressure on capital; in the end, this also allows the excess mining machine inventory to be effectively used.

As with put options, the risk of "joint mining" will eventually return to the issue of currency price and the sustainability of its own funds. Bitmain needs sufficient funds to face the possible black swan event.

Wu Jihan spoke at a customer thank you meeting. Image source: PANews

B. Bet on market demand for new miners

Down payment + final payment sales model

In the first two axes, Bitmain is betting that the currency price will not fall sharply next year, and that it can provide continuous funds to resist certain risks.In the new sales model of down payment + final payment, Bitmain is more The demand for the new generation of mining machines in the betting market and the competitiveness of the new generation of ant mining machines in the crowd of mining machines.

This year's situation is clearly unfriendly to the mining industry. The price of bitcoin has fallen below $ 7,000 multiple times, and with it, a number of mining machines, including the once-generation King S9, reached shutdown prices. On the one hand, the price of the currency has fallen, and the old mining machine cannot maintain profitability; on the other hand, the computing power of the entire network has risen, and the output of the old mining machine has become lower and lower. The competitive advantage of the new generation of low-power, high-power mining machines is becoming increasingly apparent.

In fact, the replacement of new and old mining machines has become a key consideration for many miners, and the market has demand for new machines. According to the information of Hive Finance, at the mining conference held in October this year, there was news that 4 billion yuan of mining machine futures had been sold in the mining machine market.

The miner's down payment + final payment sales model proposed by Bitmain is very attractive to miners. It is reported that customers who purchase more than 100 miners only need to pay a minimum down payment of 50% when ordering. If the order quantity exceeds 5,000, the down payment ratio can be reduced to 20%, and the remaining amount need to be paid 7 days before delivery Just clear.

Ant mining machines are generally futures. The delivery time is often delayed by 1-2 months from the order date. The payment mode is changed from full payment to down payment + final payment, which can provide customers with a certain buffer time and reduce customer funds. pressure. Correspondingly, Bitmain needs to bear more risks of “customers fail to pay the final payment, and mining machines produce more than sales”.

Down payment + final mining machine sales model, picture source PANews

C. Regain market share by catering to miners

Bitmain's move has been interpreted by many as "capturing part of the market share by taking greater financial risk."

In fact, Bitmain's mining machine sales this year are not good. Due to production and mining machine pricing issues, its previously overwhelming market share has been eroded this year. Coin weight mining pool co-founder Zhu Qian said in an interview with the media that "this year, it has become a reality that the sales of Shenma mining machines exceed that of ant mining machines."

The Science and Technology Board Daily previously reported that during the administration of Zhanke Group, Bitmain had major problems in the market and sales. In the case of insufficient output of Antminer, the pricing strategy is much higher than that of Bitmain's Shenma Miner. Introduced some unfriendly measures for miners, such as prepayment, booking purchases, etc., although they achieved higher profits, they also led to a significant decline in Bitmain's market share. At the same time, Bitwei's Shenma mining machine has seized a lot of market share due to its cost performance.

The down payment + final payment mining machine sales model is obviously a major adjustment in sales strategy made by Wu Jihan after his return. It is reported that, in addition to changes in the sales model of mining machines, Bitmain also reduced the price of high-priced orders by more than 40%, and the difference was returned to the miners in the form of non-threshold coupons.

D. Bet Ant New Miner

On the one hand, Bitmain is "pleasing" miners by way of price reduction and installment payment. On the other hand, it is also betting that the new generation of ant mining machine can stand out from the crowd.

BitWei's Shenma Mining Machine is undoubtedly the biggest competitor of Ant Mining Machine. According to a report by "Wu Said Blockchain" on the 2nd of this month, Bitwei ’s new mining machine M30S next year has been successfully taped out (that is, trial production) at Samsung. At the time, it was in the process of verifying the chip. The new machine is expected to be next year. Mass production from January to February.

Bitmain's S19 chip has also been sent to TSMC's current chip, and will return to the chip for verification soon. The mass production time is also expected in the first quarter of next year.

It is reported that the M30S will use Samsung 8nm technology and the power consumption ratio will reach 38J / T (the power consumption ratio is the power consumed per T computing power, and the lower the power consumption ratio, the better). In contrast, the highest performance on the market currently The miner ant S17pro has a power consumption ratio of 39.5J / T, and Bitwei officially calls the new machine "an industry benchmark that cannot be copied."

And Bitmain's new machine S 19 seems to be even better. According to relevant sources, compared with M30S, although Bitmain's upcoming new machine S19 is slow in mass production, its power consumption ratio and economy may be better than M30S. The S 19 will use TSMC's 7nm technology. The lowest power consumption ratio of the S 19 pro can even reach the level of 30 J / T.

In addition to the competition between the performance of the miner itself and the power consumption ratio, the outcome of the next year's battle for the miner will depend to a large extent on the capacity of the respective chip manufacturers.

It is reported that the performance of TSMC chips used by Bitmain is better than that of Samsung of Bitmicro, but because TSMC has too many customers, it has a disadvantage in chip capacity and price; in contrast, Samsung's 8nm chip performance is insufficient, but in addition to supplying Samsung Only mobile phones have larger shipments of mobile phones, so they have certain advantages in terms of production capacity and price.

Bitmain's Ant S 19 has higher performance and lower power consumption ratio, but at the same time, the production capacity and price provided by TSMC Power do not prevail. Therefore, the victory of the mining machine next year is still unknown. Bitmain is betting that the ant mining machine will win next year.

Put options, joint mining, down payment + final payment model, Bitmain has bet on the currency price next year, its own capital sustainability, market demand for next-generation mining machines, and the competitiveness of Ant's new mining machines . The launch of all these strategies is in fact Bitmain's initiative to cater to market demand in order to regain market share.

02. Behind the mining gamble

Behind the mining gamble, three important issues are actually revealed.

First, mining is facing a difficult situation.

According to the Tongtongtong report, the second half of 2019 is the craziest period for bitcoin miners' computing power competition. In June, since Bitcoin ’s entire network computing power broke through the 2018 high of 57 EH / s, within 5 months, The computing power of the entire network further increased by more than 80%, and even exceeded 100EH / s, setting a daily computing power record of 109EH / s.

The computing power is rising rapidly, but the price of Bitcoin is very weak, and the price has repeatedly fallen below $ 7,000. In other words, the competition for mining has intensified, but the return on currency prices has declined. Some media wrote that "2019 is the worst period for bitcoin miners in recent years."

The currency price showed no signs of a bull market, making it difficult for mining machine manufacturers to sell mining machines. The Planet Daily pointed out in an article that from September to December this year, the prices of mining power rigs of various mining machine makers all fell by 27-57% in different ranges.

Mining machine prices fall, source: Odaily

The worse the environment is, the stronger the participants ’desire for beauty is. The entire mining industry urgently needs a turnaround, and the halving market next year is the most likely moment for the turnaround. It can be seen that the major mining machine manufacturers are currently accelerating the research and production of new mining machines. The competition and competition among mining machine manufacturers are now particularly fierce, and there is no shortage of Bitmain.

Second, the mining landscape is changing.

The founder of Bitwei Yang Zuoxing pointed out at this year's mining conference that "mining machine manufacturers have entered an era of blossoming flowers, and Bitmain is no longer a dominant company." A number of people in the mining industry revealed that the market share of ant mining machines has shrunk since this year , Shenma and other mining machine manufacturers took away a lot of "cake".

Bitmain did not perform well this year. Yang Zuoxing revealed at the end of September this year that 30-40% of the 30E computing power added to the market at that time was contributed by Shenma.

In contrast, the sales of the new mining machines S15 and T15 launched by Bitmain in November last year were sluggish, and both miners have reduced their prices. In the iteration of 7nm models, Bitmain's actions are also one step slower than Jianan Yunzhi; In November, Jianan Yunzhi successfully listed on the Nasdaq, which is currently beyond the reach of Bitmain.

The market structure of the mining giant's monopoly has collapsed. All mining machine manufacturers want to seize the opportunity of halving next year to achieve overtaking in the corners. The original king of Bitmain wants to "break the game" and provide discounts to miners. Take the initiative to take part of the risk to cater to the market, in order to regain lost market share.

Third, mining has entered a new era of competition.

According to the Planet Daily information, the development of the ASIC chip stage is close to the ceiling, and the growth rate of mining machine performance is getting slower and slower.

Bitcoin's computing power growth rate has decreased, information source: Odaily

It can be seen that the technology monopoly in the field of mining machinery is gradually changing to give priority to market effects, and this may be the reason why Bitmain launched an option financial gameplay and adopted a strategy of cooperating with mines.

Reference article:

"The current cold winter is a difficult time, the sales strategy of Bitmain is freshly released" by Crypto Valley Live

"Wu Jihan Offering" Three Axes ", Can Bitmain Return to Glory? 》 By PANews

"Miners gamble halving the market, the super mine is coming? 》 By Token Pass

"Shenma M30S has returned to production and is about to go into mass production. Antminer wants to compete with performance speed" by Wu Said Blockchain