Talking to MinerMag founder Wolfie, what is the current situation of the Bitcoin mining industry under the pressure of halving?

Original Title: "Wu Shuo Podcast: Talking with MinerMag Founder Wolfie about the Bitcoin Mining Industry under Halving Pressure"

Original Source: Wu Shuo Real

Wolfie is a journalist and researcher who used to work for Coindesk and TheBlock. Later, he founded the MinerMag column at theminermag.com, and is currently one of the most in-depth authors researching the Bitcoin mining industry. In this podcast, we discussed the current situation and trends of mining machines, mining pools, and mining farms, as well as the pressure that the Bitcoin mining industry may face under the halving.

The following is a summary of the content. Please listen to the full version for more information.

小宇宙 ：https://www.xiaoyuzhoufm.com/episode/65bcfcf60bef6c20748c1e82

Little Universe : https://www.xiaoyuzhoufm.com/episode/65bcfcf60bef6c20748c1e82

Youtube：https://www.youtube.com/watch?v=4yVNRbJpS1o

Please introduce yourself briefly

I joined CoinDesk in 2017, focusing on reporting industry news in the Asia region. With China's significant impact on the industry at the time, my focus was mainly on exchanges, mining, and various projects. Therefore, I gradually shifted more attention to the mining field. Later, I moved to The Block to continue similar work until 2021. That year, the crackdown on mining was particularly severe, and I turned to research work. Especially during the bull market in 2021, many North American mining companies went public, and public data became more abundant, providing ample space for content production and research. Mining is not only an important investment field, but also provides rich analytical materials for researchers.

After leaving The Block, I noticed that many companies tend to focus only on specific areas. Therefore, I decided to create a platform that focuses on mining data, news, and research, called TheMinerMag. After co-founding it with my friends, our main work is to focus on the data of all North American listed mining companies, extract information from financial reports, and present it through visualization, tracking the progress of these companies on a monthly and quarterly basis. Our goal is to provide data analysis and visualization services to everyone. We track and regularly update the data of all major North American listed mining companies, and all information is published on TheMinerMag.com platform.

As for the profit model, consulting services are only a part of our revenue source, helping us maintain the operation of the platform. Currently, the data and research content we provide are mainly free, but we plan to create revenue through implementing paid subscriptions and other methods. This may include setting up paywalls, restricting access to certain data, mainly targeting investors in mining shares and stocks, as well as some sell-side research institutions and analysts who need this data for analysis. The information we provide at the raw data level is particularly important to them.

Do companies like Bitmain and Canaan still hold a monopoly position? Has there been any change compared to the past?

Currently, it appears that the monopoly of the industry is mainly concentrated in the hands of two major enterprises. Since 2023, we have indeed observed some companies attempting to enter the mining machine market, including Intel. Although Intel attempted to enter this field and released two generations of products, it seems to have withdrawn, indicating its relatively short lifecycle in this market. In addition, there have also been some movements in North America.

Recently, the development cycle seems to have slowed down compared to the past. In the past, companies that entered the hardware field may have found that when they joined, the speed of product updates was very fast, to the point where their technology was already one or two generations behind leading companies such as Bitmain or Shenzhen-based enterprises. This iteration speed, which used to be very fast, has been reduced from over 110 J/T to just over 10 J/T, or even smaller. However, now this speed may slow down, so for companies that still hope to enter this industry, there may be more time to prepare.

Despite possible changes in the market landscape, it remains to be seen whether American companies can successfully deliver and whether these machines can achieve the promised high efficiency by 2024. For example, some companies may compete with enterprises such as Bitmain and Canaan if they can deliver according to their advertised data. However, the quantity of their shipments is still unknown.

When it comes to Bitmain and Shenma, it seems that in the past year, after the release of the S21, the number of pre-orders has significantly increased. Some listed mining companies have even placed several to more than ten E-hashrate futures orders directly, which is more obvious compared to the previous S19xP. It is understood that Bitmain still holds a large number of S19xP in its hands in 2023, and has also begun to deploy its own mining farms to participate in mining or cloud computing power businesses, which seems to indicate that the shipment volume of S19xP to customers will increase.

In fact, many people's S21 orders show a certain degree of price reduction compared to the prices at the end of 2022 to early 2023. The price of purchasing S19xP at the beginning of 2023 may still be around $20, but by the end of the year, the price of purchasing S21, although the market has slightly rebounded, is still cheaper in futures prices. This also explains why many companies, including Bitfarms, did not rush to purchase mining machines during the period from 2022 to 2023, but chose to wait for a cycle to purchase at a lower price.

In addition, according to customs clearance data from North America, Bitmain's computing power imported from Asia to its subsidiary in the United States is very large, estimated to be between 30 and 50 E. This indicates that in addition to supplying customers, Bitmain may also be engaged in large-scale self-mining.

Any new updates on mining pools?

The pattern of mining pools has not changed significantly since 2022, with Foundry taking the lead and the rankings of other mining pools remaining stable. However, it is worth noting that the proportion of computing power in North America is at least over 50%, which has become particularly evident in the past two years. Another trend is that since early 2022, many mining pools have started forming an alliance with Antpool. Although the specific proportion of computing power is unclear, from the block rewards of Coinbase, the rewards of these mining pools often aggregate to Antpool. Antpool relies on its larger capital scale and adopts the FTPS mode to ensure that it has more reserves to cope with the fluctuations of luck. It has been observed that about ten small and medium-sized mining pools will aggregate the block rewards they mine to an address belonging to Antpool, which is part of the Bitmain series, for distribution. This phenomenon has become more evident since 2022, and Binance is also a member, along with some small mining pools such as OKX, which may actually be using other people's computing power. From the perspective of computing power concentration, since 2022, the computing power of Foundry and Antpool has already exceeded 50%, which reflects a certain degree of centralization. However, some people believe that these computing powers can be switched at any time, so there is no risk of excessive centralization.

How to view the filtering of sanctioned addresses by some mining pools?

Regarding certain policies in the United States, if there are indeed such requirements, it seems inevitable to make certain adjustments and filters to mining pools, especially for mining pools like Foundry that primarily serve US customers. They may need to develop corresponding plans to address policy requirements. For example, F2Pool (Fish Pool) also temporarily suspended certain types of filtering later on.

Personally, I believe that voluntarily filtering transactions may not fully align with the spirit of the crypto world in the absence of explicit legal requirements. For example, small mining pools like Ocean have attempted to achieve a fully decentralized model by directly sending block rewards to participating miners' addresses and allowing them to independently choose which transactions to include. This is one of the changes and attempts in the past year. However, even such mining pools have started filtering out transactions that they consider to contain too much useless information, such as ordinals, which has naturally sparked some controversy.

From a profit perspective, many mining pools seem to support this type of activity. Take Marathon as an example, its transaction volume in a certain month shows that fee income can account for 25% of that month's output. Therefore, they have an open attitude towards such transactions and have not expressed any particular support or opposition. The position of the mining pool seems to be: if there are transactions that miners need to package, we will package them and earn income from them.

On the other hand, large-scale miners, especially those well-known listed companies, often prioritize their own stock prices and investors. Their goal is to ensure that the promised computing power is fully utilized, mine more coins, and maximize profits. Although they need to disclose some data to the public, they also tend to keep a low profile and adopt a "silent and wealthy" strategy.

Is there a reshuffle happening in the listed mining companies? Is there a trend towards greater concentration and more stable business?

We track the output of about a dozen to 20 mining companies each month, which accounts for approximately 20% of the overall market, lower than the estimated 50%. Indeed, the overall trend shows that this proportion is increasing, and from 2022 or 2023, it will be around 15% to 16% and gradually increasing. It is worth noting that some companies do not disclose data every month, but choose to do so once a quarter.

During this process, a phenomenon of game theory can be observed. As each company expands its own network computing power, the overall network computing power is also pushed up. However, this expansion does not necessarily mean that companies can increase their market share proportionally, as everyone is increasing their computing power. Therefore, although the computing power of individual companies may double, the growth of market share will not be proportional to it. Over time, it is expected that these companies' share in the overall market will gradually increase, but this also depends on how many futures orders they can fulfill in 2024 and 2025, as well as their options purchasing situation for locking in prices.

The expansion plans of these companies also depend on the speed and scale of mine construction. Especially considering that this is a capital-intensive industry, after experiencing debt and bankruptcy fluctuations in 2021, the deleveraging trend in 2022 requires companies to sell Bitcoin and repay loans to reduce financial burdens. Many companies are turning to the stock market for financing, hoping to support future capital needs. Therefore, the market environment in 2024 will be a key factor in determining whether these mining companies can successfully invest in the funds needed for the future.

What impact will the halving event have on miners?

In the face of pressure in the mining industry, data from the third quarter shows that the average mining cost of major listed mining companies is about $20,000, including electricity and site operating costs. Considering the expected growth in network computing power in the fourth quarter and the first quarter, actual costs may be higher. Therefore, it is expected that some people will choose to shut down their mining machines, especially when there is little profit margin between mining costs and the current price of Bitcoin. If the cost reaches $30,000 to $40,000 and the Bitcoin price is only $40,000, the gross profit will be very limited, and this does not even consider the team's operating expenses.

The cost analysis I mentioned is only based on the direct costs of mining, such as electricity, hosting fees, and site-related expenses. However, as a listed company, there are additional expenses to bear, including office, marketing, legal and audit fees, which, when added together, will put enormous pressure on the company's financial situation.

Therefore, in order to maintain competitiveness, mining companies have to invest in the next generation of mining machines. This investment is particularly important in a volatile market where the price of Bitcoin may fall to $20,000 to $30,000, as even the more efficient S19xP miners struggle to be profitable at these price levels. All of this highlights the complexity and challenges within the mining industry, and the need for companies to carefully consider their strategic planning and financial management.

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia