I plan to leave with the flagship S9

Text | Huang Xuejiao Editor | Mandy Wang Mengdie

Produced by | Odaily Planet Daily (ID: o-daily)

Everyone knows that the two major costs for miners to mine Bitcoin are mining machines and hosting electricity prices.

Now, the mining areas have entered winter and the dry season has arrived. The power supply of the mines has changed from hydropower to dry power or thermal power, and the managed electricity price is generally between 0.35-0.37 yuan/kWh. Unless the currency market encounters extreme market conditions, the electricity price will not fluctuate significantly in the near future.

At the same time, with the entry of large-scale users and the industrialization of mining, miners have higher demands for stability and compliance, and electricity prices have gradually become a "constant".

Undoubtedly, the focus of miners' thinking has become the replacement of old mining machines with new ones.

On November 25, Bitcoin fell to its lowest point since the surge at the beginning of the year - $6,638, breaking through the S9 shutdown price.

Unlike last year's bear market when the S9 was able to make a comeback, a large number of new mining machines have been put into the market, the reward halving is approaching, and the coin price has not improved. Today, the "king of machines" may have truly come to an end.

Big miners who are far-sighted have already purchased a large number of new generation mining machines with low power consumption and high computing power a few months ago. Whether the price of coins falls or the computing power rises, the competitive advantage will only gradually become more prominent.

What about the miners who still rely mainly on S9?

Many miners who have already made back their investment plan to keep the S9 on the rack until it runs out of fuel; other miners are contacting buyers, preparing to leave the market with the S9 to avoid risks, but compared with three months ago, the price of S9 has plummeted by 70%, and it is difficult for anyone to take over; other miners are making a final effort, hoping to buy time for the S9 by modifying it.

The truth behind this is: along with the replacement of old mining machines with new ones, there is also competition and replacement of old people with new ones.

Mining is a business that requires strong relationships, heavy investment, and a long cycle, and it is also rapidly becoming centralized and institutionalized.

Small miners who cannot survive the cycle, just like the S9 that are gradually being eliminated, have their living space squeezed again and again, and are forced to leave when encountering storms.

Is the S9 dying?

According to F2pool data, based on the difficulty of Bitcoin mining on November 25, with an electricity price of 0.38 yuan per kWh, the shutdown price of S9 is 6,786 US dollars. Once the price of the currency is lower than this, the value of the currency obtained from mining will not be able to cover the electricity bill and operation and maintenance costs.

The market plunge on November 25th caused six Bitcoin mining machines, including the "king of the generation" Ant S9, to declare that "income was not enough to cover expenses". In the following week, the computing power of the entire network fell by 4%. Based on the computing power of S9 (13.5T), the loss of 4660 Ph/s computing power (1 PH/s means 1 trillion hash operations per second) is equivalent to 350,000 S9s being removed from the shelves.

After working diligently and on duty for 3 years, veteran S9 has come to the end of his career.

In 2016, Bitmain released the Antminer S9. This amazing machine occupied half of the mining machine market in the following three years and almost became the standard for Bitcoin miners. Industry insiders said, "Where there is a mining farm, there is an S9."

As of June 2019, Bitmain was still releasing upgraded versions of S9, S9 SE and S9K, despite the competition from many advanced mining machines, which shows its market appeal.

How long S9 can last is mainly affected by two factors: the price of the currency and the difficulty of computing power.

The price of the currency is difficult to predict, but many people are not confident that Bitcoin can hold the support level of $6,786.

Even if the price of the currency can rise steadily, the continuous arrival and listing of new mining machines are repeatedly pushing up the computing power of the entire network, eroding the meager profits of S9.

Since May this year, new generation mining machines have gradually arrived from various miners. As shown in the figure, the computing power has increased by up to 140% this year compared with last year, mostly due to the new generation of mining machines.

Deepchain Finance quoted a mining farm owner who often purchases mining machines in large quantities as saying, "Now 10,000 Ant T17s arrive in Shenzhen Huaqiangbei every month, and the minimum monthly growth is 5 Eh/s (equivalent to 390,000 S9s), and this is just one manufacturer and one model of mining machine.

In general, futures contracts of various mining machine manufacturers have been booked until February, which means that the difficulty of the entire network will continue to rise in the next three months.

Based on the current mining difficulty and electricity price of 0.35 yuan/kWh, the mining income of S9 (13.5T) is only 2.07 yuan/day. For every 1% increase in mining power (difficulty), the income of S9 will decrease by 1%.

This tiny profit means that the S9s that are still running are either in low-water mines with cheaper electricity prices (the mines are smaller due to the small amount of dry water) or in their own thermal power mines.

Why do we need to emphasize that it is our own mine?

As mentioned above, the S9 is at risk of being taken off the shelves at any time in the short term. Therefore, when the Fengshui mine stopped operating at the end of October, many thermal power mine owners were unwilling to accept the S9 to avoid potential losses caused by the sudden vacancy of the machine position.

Many miners are unwilling to hold on to this small profit and have made up their minds to clear their positions and leave.

When the market just recovered in March, miner Huang Can bought a second-hand S9 for just over a thousand yuan, and by the second half of the year he had made his investment back in profit.

“At that time, I thought I could mine one day at a time, but I didn’t expect that (S9) would drop to the shutdown price in November.” Huang Can said as he prepared to sell all the S9s in his hands.

But unfortunately, the price of S9, which was rejected by mining farms and on the verge of being shut down, has plummeted.

Take Ant S9K (14T) as an example. Its official website selling price was 2,700 yuan in early September. Three months later, in early December, its price had dropped by 70% to only 800 yuan.

“In fact, if you sell it like this two months before the end of the flood season (that is, early September), the price is still acceptable. But who would have thought. In the future (S9), it will only be cheaper, unless the price of the currency skyrocket. So sell it as soon as possible.” Huang Can pondered.

Is there any hope for S9? Can I buy a new mining machine?

Being forced to remove the coins from shelves and sell them is obviously more passive. Some miners have found a new way, hoping to gain a chance of survival by modifying the S9 in their hands.

When the S9 was rejected by mining farms and on the verge of shutdown, some mining machine repairers and service providers launched S9 modification services.

The modification is to convert two S9s into a double-cylinder mining machine. The computing power of the modified mining machine can be increased from 13.5T to 20T (an increase of 30%), and the power consumption increases by about 10% compared to a single unit. The power consumption ratio drops from 100 T/W to 77 T/W, which is equivalent to the more powerful S11. The daily income is increased by about 100%, and it can more effectively cope with the decline in currency prices, the increase in computing power and even the halving of production.

Data from: Poolin Mining Pool

The market price of the modification fee ranges from 20 to 60 yuan. Based on the current computing difficulty and the electricity price of 0.35 yuan/kWh, the modified S9 can pay back the cost in about 1 to 2 weeks of operation (the cost includes round-trip shipping and modification fees).

"Mining machine modification is nothing new. Since the Ant S1-S3 era, people have started to change resistors to reduce power consumption." Mining farm owner Wang Guo told Odaily Planet Daily.

From the beginning of November to now, Wang Guo has seen people buying S9 in large quantities at low prices, modifying them and putting them on the shelves again.

Wang Guo also tested the modification of several S9s in his own mine. "It can save some money (electricity bills), but the failure rate is hard to guarantee. The few I upgraded were not very stable. Generally speaking, the S9 itself is almost at the end of its lifespan, and it will not last long."

Instead of trying to save the S9, Wang Guo is considering buying some new mining machines to “fill the gap”.

Whether the price of coins falls or the computing power increases, the advantages of the new generation of mining machines with low power consumption and high computing power will only become more prominent in the competition.

However, at present, the price of the currency is uncertain, and the new mining machine will catch up with the Bitcoin halving before the payback period (the payback period of the new generation of mining machines is mostly between 10-18 months), and the extension of the payback period seems inevitable. Under the influence of these multiple factors, miners are in a wait-and-see mood.

“From the market perspective, based on the experience of the last halving, the coin price will rise before the halving and fall after the halving, and the bull market will not come until one year later. Before the bull market comes, you have to bear the pressure of continuing to pay electricity bills without getting your money back. Although there has always been currency output, mining, selling and withdrawing is not a good strategy, and it is too passive when the coin price is low.” Wang Guo has many concerns about purchasing a new mining machine.

Huang Can, who was preparing to sell out his S9, temporarily gave up the idea of ​​buying a new mining machine. "Unless there is a big market, otherwise, the price of the currency will fall again, the output will decrease, and the closer it is to the halving, the more pessimistic people will be. I think the mining machine will be cheaper by then." He shook his head, thinking that the "bottom-hunting time" for new mining machines has not yet arrived.

Since its launch, the price of new phones has indeed been falling.

As shown in the following statistics, from early September to early December, the prices of high-computing-power mining machines from various mining machine manufacturers plunged by 27%-57%.

The sales of new mining machines are not optimistic, which can be seen from the vigorous marketing actions of mining machine manufacturers.

On December 7, Bitmain disclosed its series of mining machine "promotion" policies at a customer appreciation meeting in Chengdu. First, it supports customers to purchase mining machines in installments, and can get a down payment discount of up to 20% depending on the order volume; second, it launched the "buy mining machines and get options" activity, giving customers with orders of 10 million yuan or more a put option of 1% of the order amount (that is, no less than 100,000 yuan) to help customers hedge the risk of falling coin prices.

It remains to be seen whether this move will boost sales.

After leaving with S9, can I ever come back?

Behind the short-term decision to buy or sell mining machines is the prediction of long-term trends.

Recently, the National Development and Reform Commission removed "mining" from the list of eliminated industries, and Canaan Creative successfully landed on the Nasdaq, both of which are regarded as important positives in the industry. The former lifted the "red line alarm" of the mining industry, and the latter popularized the mining industry and helped the mainstream financial market gradually accept mining assets.

What everyone has noticed most obviously this year is the changes in mining players: large amounts of capital entering the market and financial support.

Just like the gradually eliminated S9, the small miners have their living space squeezed again and again, and are forced to leave at the slightest sign of trouble.

Let me ask, have those who left the mining industry last year returned in this year's bull market? And do miners who are on the verge of shutting down or even temporarily leaving the industry this year still have a chance to stay and see what happens next year?

From November 15 to 25, 2018, Bitcoin fell from $6,500 to $3,652 in 10 days, breaking through the shutdown prices of many mining machines, causing 600,000 to 800,000 mining machines to be removed from the entire network, and the computing power of the entire network plummeted by 1/4.

At that time, Jiang Zhenqin, a small miner, sold his mining machine early to avoid the sharp drop because his family needed to build a house. This "survival" made the miner hesitant after the market started to pick up this year. "I'm afraid it will be like the 18th year, when the mining machine that I had been mining for half a year was about to pay back, but it plummeted."

By the middle of this year, when Jiang Zhenqin wanted to restart mining, the computing power of the entire network continued to soar, and the new generation of mining machines basically cost 20,000 yuan each. After calculating the next payback period, it happened to be the halving period. Fearing that the coin price would change significantly at that time, Jiang Zhenqin decided to give up.

He sold "13 graphics card mining machines and 14 Litecoin mining machines" last year, and he doesn't know if he will have the chance to pick up the title of "miner" again.

Now, Huang Can, who is preparing to clear out S9, is planning to leave temporarily, just like Jiang Zhenqin did at the beginning.

But even if the industry does pick up, can small miners who are particularly sensitive to the price of mining machines, currency prices, difficulty, and payback period predict the cycle and get on board smoothly without becoming "taker"?

The answer is self-evident.

An industry insider also explained the reason why small investors left the market one after another: "The bull market at the end of 2017 brought too many people, and coupled with the bear market, mining profits were continuously diluted. Under such competition, small miners cannot benefit from economies of scale like large miners."

Small miners bid farewell to S9, mining industry bids farewell to small miners

Institutionalization and centralization may be the sign of maturity of all industries, but also their destiny.

In March and April of 2019, as the market showed signs of a bull market, a group of eager "foragers" had already gathered outside the circle. Cryptocurrency funds, power industry, and traditional financial players came with large amounts of funds, vowing to find gold mines.

What we can see intuitively include Fidelity, one of the world's largest asset management companies, crypto fund Fundamental Labs, and LD Capital.

On May 5, Fidelity revealed in a special meeting on cryptocurrency that it would invest in Bitcoin mining and related energy industries. Soon after, blockchain investment institution Fundamental Labs also launched a $44.5 million (about 300 million RMB) first-phase fund for computing power construction. In the future, the fund will also raise funds in batches, with a total target size of $150 million.

For Token Fund, Bitcoin is the only bullish cryptocurrency in this round. There is a shortage of high-quality ICO projects, and some new coins are sold out first through private placement. Except for the brief recovery of Bitcoin, no other secondary market has been able to break through. Helplessly, investing in the ever-rising mining industry has become a good investment. The same is true for traditional funds. The mining industry is more "profitable" than other targets.

The way funds enter the market is usually by directly cooperating with mining farms. The fund provides the money, the mining farm provides the manpower and labor, and the income is divided proportionally.

Seeing the business of newcomers, and the fact that many veteran miners in the industry had been struggling in last year's bear market and had no idle funds, Renren Computing Power CEO Wang Xiaoyi partnered with others to raise a computing power fund to raise money for investors who have money but cannot or do not intend to mine themselves. Wang Xiaoyi's team will provide electricity, mining machines, infrastructure and operation and maintenance. After the investment is recovered, the two parties will split the profits, with the investor taking the lion's share.

Of course, that was in the first half of the year. The poor market conditions over the past few months have raised the threshold for newcomers to continue to enter the market. But "unfortunately", miners with poor sales in the bear market have begun to mine in large numbers.

Bitmain also launched a joint mining model at the thank-you meeting on December 7, where it provided S17 series mining machines and electricity costs (0.35 yuan/kWh), and the partner provided the mining site and operation and maintenance, and jointly mined for one year. After deducting the electricity costs, the net profit from mining can be 25% for the customer, and the rest belongs to Bitmain. If the net profit is less than the electricity cost, no profit will be distributed.

“Mining is a zero-sum game (intra-industry competition). If anyone wants to gain, others must lose in proportion.” An old mining man once again pointed out the law of survival of the fittest.

As big players flocked into the market, in addition to the laughter of newcomers, you could also hear the tears of old players. From configuring mining machines to finding electricity, the gap between miners of different sizes continued to widen.

For example, if a miner buys an Antminer S17 mining machine, according to the latest official policy, if you buy more than 1,000 units, you can get a discount of 500 yuan per unit, and if you buy less than 500 units, you will have to spend 500 yuan more. In addition, if you buy 100-999 Antminer 17 series mining machines, miners can pay in installments, and you can get the mining machine with a down payment of 50%; and if you buy more than 2,000, you only need a down payment of 30%.

For example, a large mining farm with a load of 200,000 only accepts machines with high computing power and full-year hosting. If you move out midway, you will have to pay a large penalty. This clause is obviously more favorable to large miners who are strong and seeking stability, and will not be very attractive to small and medium-sized miners who are eager to pursue low-cost electricity during dry season.

As mentioned earlier, mining is a business that requires strong relationships, heavy investment, and a long cycle, and it is also becoming more centralized and institutionalized at an accelerating pace.

The industry is becoming less and less welcoming to the weak and newbies.