China does not need the mining industry, but new mining machines are sold out in seconds after they are launched. Why is the crypto mining industry so hot and cold?

On April 8, the National Development and Reform Commission announced that it plans to list virtual currency "mining" activities (the production process of virtual currencies such as Bitcoin) as an industry to be "immediately eliminated", which dealt a heavy blow to the entire mining market. The industry is worried that if this policy is set, it may repeat the ICO ban in 2017, but this time it will be the turn of the mining farms to be eradicated from the country!

But the strange thing is that just one day later, the new products of the mining machine giant Bitmain, Antminer S17 and S17 Pro, happened to be on sale. This SHA256 algorithm mining machine, which is said to be the most powerful so far, was sold out in less than 5 minutes on the Bitmain official website. It can almost be said that it was "sold out in seconds". The industry's enthusiasm for the new mining machines seemed to be unaffected by the ban.

Why is the cryptocurrency mining industry so polarized? Is the market hot or cold? Is the prospect promising or worrying?

(△Source: Pixabay)

Regulation sends a strong signal: China does not need a mining industry

The "Guidelines for Industrial Structure Adjustment (2019 Edition, Draft for Comments)" released by the National Development and Reform Commission this time consists of three types of industrial activities: encouraged, restricted, and eliminated. Among them, "virtual currency 'mining' activities" are listed as eliminated industries.

According to the draft for soliciting opinions, the "obsolete category" mainly refers to backward processes, technologies, equipment and products that do not comply with relevant laws and regulations, seriously waste resources, pollute the environment, and do not meet the conditions for safe production, and therefore need to be eliminated.

It is worth noting that in the draft for comments, the year in brackets after the elimination-type industry items is the elimination deadline; items with elimination plans will be eliminated according to the plan; items without elimination deadlines or elimination plans are those that have been explicitly eliminated or will be eliminated immediately by national industrial policies. However, there is no elimination deadline or elimination plan after the virtual currency "mining" activity.

In other words, once the case is finalized, the mining industry will become an industry that will be "immediately eliminated". The industry believes that this is the strongest signal that the regulatory authorities have sent to the mining market so far, stating that China does not need the mining industry, and not only does it not encourage it, but it must be actively eliminated. Especially if we compare it with the fact that in September 2017, after the People's Bank of China officially issued the ICO ban, it quickly closed down domestic virtual currency exchanges within a few months. It makes people wonder whether the regulatory authorities will start to sweep domestic mining farms next?

In this regard, industry insiders believe that this is different from the ICO ban. Even if the draft for comments is finalized, it does not mean that the mining industry is illegal. However, if the NDRC policy is set to not support it, local governments may be very unfriendly to mining farms in the future. In the long run, the domestic environment may have a suppressive effect on the mining industry. Mining farms that used to survive in remote areas of the country by obtaining cheap electricity under various pretexts may be gradually eliminated.

The mining market is on the move, showing signs of overheating

In fact, as the price of Bitcoin has rebounded from $3,000 to $5,000, and the summer low electricity price and flood season are approaching, the mining industry, which was once mostly dead, has recently begun to stir and show signs of recovery, which has also led to a quiet rise in the price of mining machines. Mining machine manufacturers are also sharpening their knives and frequently updating their product lines.

For example, Bitmain, the industry leader with a market share of over 80%, first launched the 7nm chip mining machines S15 and T15 in November last year, and quickly upgraded in February this year, releasing the second-generation 7nm chip BM1397, which was immediately used in the new generation of Antminer S17 and S17Pro. According to Bitmain, this is its most powerful SHA256 algorithm mining machine to date, with a price ranging from RMB 15,960 to RMB 17,490. The first batch of spot goods was sold out within 5 minutes of going on sale on the official website.

Long before this, Bitmain had actively launched online and offline marketing campaigns with the slogan "Decisive Battle in the Flood Season". On the one hand, it announced new machines, and on the other hand, it took the opportunity to clear out its inventory of old machines in exchange for cash.

Senior mining professionals pointed out that the prices of some mining machines have doubled recently, even exceeding the reasonable break-even price, indicating that the current mining market has even shown signs of overheating. Investors have begun to enter the market blindly, fearing that they will miss this rebound.

Now, will the sudden decree issued by the National Development and Reform Commission kill the mining industry's recovery? According to CoinDesk data, the price of Bitcoin once rose above $5,400 on Thursday, reaching a five-month high, and then quickly plummeted to around $5,000, showing that the current market is quite divided between long and short positions.

The Wall Street Journal pointed out that if China is considering banning Bitcoin mining activities, it may cause mining farms to close and computing power to decline, which is not conducive to the entire network. However, in the long run, this will make the virtual currency mining farms that are currently highly concentrated in China more dispersed, promote the decentralization of the network, and may play a positive role. According to different estimates, 40% to 70% of Bitcoin's computing power still comes from China.

CoinDesk pointed out that there have been cases in the past where “eliminated” industries have been reclassified. Even if the draft for comments is finalized, how it will be implemented will still depend on how local governments respond. After all, some regions may still have demand for the mining industry.

Regarding virtual currency mining, the mainstream view in society is that it is a waste of resources and damages the environment. A large amount of electricity, computing power, manpower and material resources are invested in the production and operation of certain virtual assets, but in fact such assets currently make no contribution to the real economy, so the entire mining industry is just a meaningless waste.

However, industry insiders analyzed that most of the large-scale mines are now located in remote areas with overcapacity such as the northwest and southwest, and they use excess electricity that is nowhere to be found, so it cannot be said to be a waste.

In addition, cryptocurrency mining is to maintain the operation of the underlying consensus mechanism of the so-called "Proof of Work" (PoW), which plays a highly protective role in the security of the entire decentralized virtual asset. The electricity burned by the mining industry is not all wasted, but valuable. It's just that most people still can't see the value of PoW, so they think that this electricity is wasted.

In other words, does China really need a mining industry? Or is there any significance in the mining industry? Only when blockchain technology can be truly implemented and play a visible role in the real economy can its significance be truly recognized.