Author | Wang Jiangyue

Preface

Having been part of the Bitcoin mining industry for four years, I’ve experienced the ups and downs characteristic of this ever-changing world. The crypto industry resembles a thorny rose, full of temptations and pitfalls. Externally, black swans and gray rhinos often remind us of the vulnerability of the crypto industry itself (yes, it is easily influenced by macroeconomics and geopolitics). There is a popular quote from “Game of Thrones”: chaos is a ladder. Some people take advantage of chaos while others are merely pawns in someone else’s game. Before the next cycle begins, I’ll share my expertise and perspective from these four years with like-minded practitioners.

Cyclical Nature and “Decentralization”

When I stepped into this industry, the first thing that impressed me was the constantly fluctuating curve of Bitcoin. Volatility and periodicity, the fundamental to the cryptocurrency industry, price fluctuates resembling an electrocardiogram (undoubtedly thrilling). These fluctuations mirror investors’ dynamic supply-demand changes and confidence in Bitcoin, while periodicity highlights repetitive patterns. Given that each cycle sees an upward spiral in prices, cycles themselves become relatively optimistic expectations. Here, I want to modify Keynes’ words: In the long run, some people will survive.

Assessing Bitcoin’s value requires considering its long-term narratives, centered around “decentralization.” These narratives stem from Satoshi Nakamoto’s whitepaper published in 2009 — whether it be “decentralization” (P2P technology practice) or digital gold as a safe-haven asset (Bitcoin’s deflationary mechanism), they are based on a belief in “technological determinism.” However, human behavior often overlooks the diffusion of technology.

From what I have seen in Bitcoin and its mining industry, “decentralization” is a false proposition. Today, more mining machine manufacturers undergo multiple rounds of technological innovation and evolution, they have become highly centralized. The market share held by Bitmain, Canaan, and Whatsminer alone exceeds 90%. Mining pools are also highly concentrated; the top five control 90% of global hash power. Exchanges are no exception; they are heavily dominated by Binance and Coinbase. The same goes for Bitcoin holders — the top three being Satoshi Nakamoto, Binance, and the US government. Now, the cryptocurrency industry has transformed amidst significant global economic changes and geopolitical conflicts. It demands that each individual resets themselves, breaks free from historical experiences, and approaches things with an open mind like a newcomer.

I. Mining Machine Products and Development Trends Amidst Changes

With clashes between Eastern and Western civilizations, geopolitical influences, OPEC+’s rise to power, the pressure from extreme environmentalists advocating green initiatives, and ongoing domestic inflation in the United States along with the spread of a new era of deglobalization — a continuous increase in traditional energy prices globally has become an undeniable fact that will persist for a long time into the future. High-efficiency machines become essential for miners, addressing environmental concerns and extreme climate limitations. What the industry urgently needs is new technologies and products to address these potential challenges. Besides air-cooled machines, immersion liquid cooling emerges as a viable option for next-generation breakthroughs.

Overall, factors determining trends in mining machine product development can be summarized as follows:

1. ASIC Process: Chips play a crucial role in mining machine performance. Advanced processes like 5nm and 3nm are mature, and major manufacturers excel in their designs. With the technological iterations and design advancements of mining machine manufacturers,both the design and production aspects of mining chips have matured. Today, almost all major mining machine manufacturers can easily complete high-efficiency chip designs using TSMC’s advanced processes (5nm and 3nm), Samsung’s (5nm and 3nm), and SMIC’s N+1and N+3. From the perspective of machines produced by these three chip foundries, TSMC is undoubtedly the best in terms of yield rate and performance, followed by Samsung, and then SMIC.

These wafer foundries rely on “harvesting” research and development investments from mining machine manufacturers to achieve breakthroughs in their technology and processes. Wafer foundries always present themselves as being involved in cutting-edge consumer electronics and artificial intelligence (think about gamers protesting against Nvidia’s “mining cards” public relations crisis, and Intel repeatedly announcing plans for mining chips but never following through). Some wafer fabs are reluctant to admit that it is the cryptocurrency mining business that gave them the initial transfusion of research and development, allowing them to achieve advanced process breakthroughs built up by a large number of US dollars.

2. Performance Efficiency ratio (PE) will be the sole competitive indicator: Reflecting on Bitcoin’s fourteen-year history, with its bull and bear cycles, every bear market has witnessed a significant decline in coin prices due to the shutdown of numerous mining machines, resulting in a corresponding decrease in electricity prices. However, the ongoing bear market, which began in mid-2022, is unprecedented, as it has seen coin prices plummet while electricity prices rise. This, combined with the impending fourth round of halving block rewards, suggests signs of a potential “strangling” of the mining industry. Nevertheless, advancements in mining machine chip processes and the introduction of high-efficiency machines have somewhat postponed the “judgment day” for mining.

Hence, in future markets, mining machine manufacturers will inevitably compete in markets characterized by low coin prices and high electricity costs. The PE ratio of mining machines will emerge as the singular crucial performance indicator. Miners, given the availability of funds, will opt for high-efficiency machines. In the current market landscape, machines operating at 25 J/T are deemed entry-level, while developing and producing machines with efficiency around or below 20 J/T will be essential for gaining a competitive edge. Furthermore, concerning the machine form factor, apart from traditional air-cooled machines, efforts should be directed towards promoting the development and mass production of submerged liquid-cooled miners to better adapt to extreme climate conditions and create human-friendly environments.

3. Competitive product parameters for the next 6–12 months (before and after halving):

· Products with a competitive edge:

- Energy Efficiency (PE): 20 J/T ±3%

- Hashrate: 160 TH/s ±3%

- Power Consumption: 3200W ±3%

· Entry-level products in the market:

- Energy Efficiency (PE): 25 J/T ±3%

- Hashrate: 130 TH/s ±3%

- Power Consumption: 3250W ±3%

· Any other machines with energy efficiency ratios above 30 J/T will face shutdown and elimination. Even if they are sold to customers with particularly low electricity costs or those engaging in electricity theft, they lack competitiveness. Moreover, the market of stolen or “ultra-cheap power” is very niche, highly unstable, and suspected to be illegal. Therefore, investing time and resources in such a market is not advisable.

4. Why is immersion liquid cooling the future of mining machine products and even the infrastructure of the mining industry? The mining sector confronts two primary contradictions. Firstly, the investment in research and development of advanced process chips has become increasingly high, often reaching hundreds of millions, while the resulting performance improvement is diminishing. For mining machine manufacturers, this leads to diminishing returns on investment, necessitating low-cost improvements to achieve a more energy-efficient technical path. Immersion liquid cooling emerges as the most efficient cooling technology in this context, allowing machines to enhance performance through overclocking without the need for chip upgrades. Combining immersion liquid cooling with containers offers advantages like space efficiency, higher modularity, reduced noise levels, and the ability to withstand extreme weather conditions such as climate and sandstorms. Therefore, it is anticipated to become the infrastructure for the next generation of the mining industry.

The mining industry also faces another contradiction: while the overall network computing power and mining difficulty continue to reach new heights, block rewards are continually halving. As a result, for miners, this leads to diminishing investment returns, where only large-scale miners stand a chance to succeed. This indicates that the industry will witness further consolidation in the future. In contrast, the integrated mining machine industry will possess abundant capital and motivation to drive product iteration and mine construction, providing a prerequisite for the large-scale application of immersive liquid cooling technology.

II. Market and Sales Forecast: Supply Chain, Spare Parts Inventory, and Sales Strategy

Wafer and Foundry: Typically, the production cycle for wafers spans 4–6 months. Given the historical dominance of foundry, mining machine manufacturers usually find themselves obligated to make full payments or at least a 50% prepayment to secure wafer foundry services. This places considerable cash flow pressure on mining machine manufacturers, compounded by the unpredictable bull and bear cycles of Bitcoin, which introduces uncertainty regarding future sales shipments. Therefore, it is essential for mining machine manufacturers to make accurate market forecasts and effective sales strategies to mitigate risks.

In my opinion, based on prevailing market conditions and supply chain situations, it becomes imperative to control the proportion of spot sales while increasing the share of futures sales. Additionally, continually optimizing the customer structure can help reduce risks. The specific strategies are as follows:

1. Futures Sales Strategy:

Under this approach, 80% of the production capacity will be allocated for futures sales, with delivery scheduled in batches after a 6-month period, following an average monthly shipment plan. Implementing this strategy ensures a balanced and efficient operation of production and supply chains, effectively alleviating cash flow pressure resulting from wafer (chip) inventory stocking, as well as reducing procurement costs for auxiliary materials and other components.

2. 50% Prepayment Strategy:

Upon contract signing with customers, a 50% prepayment of the total contract amount is required within one week. This prepayment serves two vital purposes — firstly, securing unit prices and production capacity, and secondly, ensuring sufficient cash flow for purchasing wafers by mining machine manufacturers. By adopting this strategy, two key aspects are guaranteed: first, it safeguards normal R&D activities, production operations, and procurement needs; secondly, it helps distribute risks that may arise during bear markets, as nearly all costs associated with machines can be covered by this 50% prepayment.

3. 2:8 Principle for Key Account Strategy:

As mentioned earlier, the notion of decentralization in this industry is misleading; in reality, it is highly centralized, particularly in mining operations where substantial capital and technical support are prerequisites. The entities that endure through bull and bear cycles are typically “major miners” equipped with technology, funds, and proficient teams. In contrast to short-term speculation seen in individual retail investors, their involvement in mining is driven by long-term strategies and business layouts. Hence, key accounts frequently form strategic partnerships with mining machine manufacturers, aiming for

cooperation and mutual benefits. These key accounts serve as the backbone of the cryptocurrency industry, while individual retail investors often play a smaller role due to their short life cycles and high liquidity, which makes it challenging to maintain long-term cooperation.

Based on my observations over the past five years, few individual mining investors have survived beyond one season. In the early stages of this industry, apart from Bitmain, most customers of mining machine companies were domestic and individual miners in China, with limited involvement of international major clients. However, over the past four years, most of mining machine enterprises have gradually established strategic systems, with international major clients forming their foundation. These clients include well-known traditional mining companies such as Genesis Mining, Hut8, Core Scientific, Bitfarm, Bitfury, and emerging publicly listed companies like Hive Blockchain, Mawson Infrastructure Group Inc., Iris Energy Ltd., Marathon Digital Holdings Inc., Riot Blockchain Inc., and others. Sales revenue from key accounts has consistently accounted for an average proportion exceeding 80%, providing a solid revenue foundation.

III. Sales Operations and Management

1. Market Forecast: In general, sales operations should prepare a rolling forecast every three months for the next 12 months. It is well-known that making accurate sales predictions in the Bitcoin mining industry is challenging due to its unpredictable nature. However, it is still possible to make a rolling quarterly sales forecast by combining futures orders and market trends. Given the long supply chain from wafer fabrication to finished products in the mining machine production process, sales operations requires professionalism and market insight to minimize stock outs or excess inventory.

2. Sales Pricing: Mining machine prices are highly transparent in a relatively small market with few players. Apart from pricing based on experience and costs, mining equipment manufacturers should also consider factors like channel inventory levels, future availability of mining farm slots and power resources, cryptocurrency prices, electricity costs, and network-wide computing power. In terms of pricing strategy, competitive advantage lies in offering investment payback periods ranging from 12–18 months for miners; those priced at 18–24 months are considered average, while those exceeding 24–30 months are generally difficult to sell. Most miners have speculative mindsets, aiming for quick profits without having the ability to predict BTC’s medium-to-long-term trends.

3. After-Sales Service: Mining machines operate under harsh conditions; therefore, stability, ruggedness, ease of maintenance, and replacement are crucial indicators when selecting equipment. Additionally, timely after-sales service holds utmost importance, as time translates to BTC within a normal mining environment. As a result, stable and rugged machines, coupled with prompt after-sales support, become critical considerations for miners when making purchases.

4. Sales Reports & CRM: This industry differs from traditional fast-moving consumer goods or IT sectors; instead, it resembles more of a speculative financial sector. Consequently, sales analysis can accurately reflect current data but may not provide significant reference for historical or future trends. On the other hand, data related to cryptocurrency prices, availability of mining farm slots, electricity costs, network-wide computing power, and difficulty coefficients hold more practical implications for sales guidance. Customer data in CRM systems is subject to periodic elimination, with low retention rates; long-term customers mainly consist of a dozen key accounts, while most small and medium-sized retail investors perish “before the dawn of a bull market.

IV. Channels: Opportunities and Risks Coexist

In any industry, whether B2B or B2C, channels play a vital role. Take the fast-moving consumer goods industry for example. Some once believed that channel is the King, but distributors and agents quickly learned otherwise. Today, channel partners have matured through decades of development and management, recognizing that channel is not the King. In the B2B industry, channel partners are becoming more professional, expanding their roles beyond mere distribution. They provide technical support, solutions, and financial backing for inventory stocking. However, this ambition for power can sometimes clash with brand owners’ strategies, leading to conflicts.

1. Channels can either carry a boat to success or overturn it like water. Channel management is a complex art, not just about the channels themselves, but also about understanding human nature. It involves a strategic game between brand owners and channel partners, driven by desires and expectations, while also serving as a litmus test for salespeople’s understanding of human behavior.

When brand owners are in a weak position, channel partners may prioritize their own interests, disregarding the brand and customer benefits. They swiftly seize any available opportunities for short-term gains, leading to mutual undercutting and aggressive price slashing among regional/channel partners. Consequently, brand owners face challenges in delivering products, resulting in significant inventory pressures and market price chaos. This often leads to external customer complaints, and internal sales staff competing and undermining each other. As a result, brand owners become captives of the channel partners, suffering not only financial losses but also alienating customers. On the other hand, when channel partners are in a weak position, brand owners often blame them for ineffective expansion and missed opportunities.

Over the recent years’ development of mining industry channel partners, their strategies are as follolws:

(1) Bull Markets: They abstain from participating in the rush to purchase relatively high-priced mining machines during bull markets. Instead, they prefer to observe from the sidelines, enjoy beer and skittles. When opportunity arises, they swiftly buy at lower prices and reselling at higher prices to make profit.

(2) Bear Markets: They occasionally manipulate mining machine manufacturers who are under pressure from both inventory and cash flow during bear markets. They set traps and deceive the manufacturers by persuading them to sign a so-called “ collateralized installment payment contract.” However, the initial payment rate is very low, effectively locking the mining machine manufacturers into their quoted prices and production capacity. Subsequently, they seize control in the market, raising prices slightly (even lower than the official prices of the mining machine manufacturers), and then proceed to resell machines or even the contracts themselves. The outcome is a chaotic market where the mining machine manufacturers struggle to sell their inventory, as the prices and shipments are fully controlled and held hostage by the channel partners. The channel partners profit, while the mining machine manufacturers end up being exploited and incurring losses.

2. Chaos in the channel management of the mining machine industry from several leading manufacturers:

(1) During a bull market, mining machines are in high demand, and both miners and distributors struggle to find available units. On one hand, leading manufacturers retain the maximum sales profit within their exclusive sales companies. On the other hand, distributors or agents add layers of markup and occasionally encourage kickbacks at lower levels. From the market’s perspective, this leads to opaque pricing, escalating costs, poor customer sales experience, and a tarnished reputation for integrity, ultimately resulting in the loss of major clients.

(2) During a bear market, due to the previous pressure on channel inventory accumulation, once a bear market arrives, distributors’ panic and “selling off” strategy will leads to instant chaos in market prices. Desperate demands from miners and channel partners ask for refunds or return with compensation coupons to offset losses. manufacturers can accept refund requests if they have enough cash flow, however, during a bear market, no one has extra cash, and everybody wants to reserve some cash for winter. Moreover, not all initial purchase prices by miners and channel partners were necessarily directly from manufacturers. Since this year’s bear market began, there have been collective disputes among channel partners resulting in repeated lawsuits.

(3) A large amount of excess inventory is piling up with price cuts imminent: According to incomplete statistics, there are currently approximately 1 million units of excess inventory in the market, including those held by distributors and unlisted by mining enterprises. As the bear market continues and the halving approaches, along with the completion of iteration for new generation mining machines, the current stockpile will soon become scrap metal. To minimize losses, leading manufacturers will inevitably cut prices drastically by promptly selling off excess inventory. If certain leading manufacturers can successfully sell off at discounted prices, they would achieve two goals simultaneously: alleviating inventory pressure while also crushing other competitors before the dawn breaks on the bull market. Other manufacturers who wish to survive must adopt faster and more aggressive sales and pricing strategies, implementing a precise price sniper strategy.

3. 2B Business Model: Key Account Model vs Retail Customers and E-commerce:

(1) Selling mining machines follows a simple 2B business model, where key accounts play a significant role by bringing in large sales volumes, and professionalism of customers serves as the foundation. While retail customers and e-commerce contribute as supplementary sources, some mining machine manufacturers mistakenly believe that they can sustain their companies solely through retail customers and e-commerce. In reality, whether it’s Bitmain, Microbit or Avalon, more than 80% of their sales come from less than 20% of key accounts.

(2) Communication and service costs between key accounts and retail customers: Key accounts boast professional operation and engineering teams, with dedicated personnel for after-sales service and updates, making the process efficient and effortless. On the other hand, retail customers often lack a team to handle even minor firmware updates or power interruptions, leading to numerous after-sales engineers being involved unnecessarily due to their lack of understanding. This ultimately results in complaints against the manufacturer. For manufacturers, this becomes an unprofitable endeavor as they struggle to meet demands while ensuring comprehensive services.

V. The Smokeless War Between Miners and Mining

1. In the early days, Chinese miners primarily operated in mining sites located in Yunnan, Guizhou, Sichuan, Xinjiang, and other regions. They relied on thermal power plants and hydropower during the rainy season to keep electricity and maintenance costs low. By deploying 10,000 machines and hiring 3–5 high school graduates from rural areas who could quickly be trained, these miners maintained their operations. Consequently, China gained a significant competitive advantage in the mining industry and briefly accounted for 70% of global network computing power.

Over time, this group of miners evolved, and a few major players remained concentrated within China, similar to mining pools and exchanges. Stealing electricity or obtaining cheap electricity became their preferred methods to maximize Bitcoin acquisition at minimal cost. This often led to collusion with local officials, impacting their interests and prompting the Chinese government to introduce measures against corruption and green carbon neutrality policies, ultimately putting an end to mining activities in various regions.

2. On September 3rd, 2021, the “National Development and Reform Commission (NDRC)” and eleven other departments jointly issued a document titled “Rectifying Virtual Currency Mining.” Shortly after, on September 24th of the same year, “The People’s Bank Of China (PBOC)” and ten other departments released a notice regarding further prevention and disposal of risks associated with speculative trading involving virtual currencies. These actions significantly disrupted cryptocurrency circles, affecting both trading platforms (“coin circles”) and mining operations (“mining circles”) in China.

In response, many Chinese miners chose to “migrate platforms and employees overseas” and “dismantle and ship mining machines to Kazakhstan,” a Central Asian country with cheap electricity and favorable mining laws. Kazakhstan quickly became a sought-after paradise for Chinese miners, contributing 30% of the global hash rate within just 3 months. However, the dream was short-lived as riots erupted in Kazakhstan on January 6th, 2022, causing Chinese miners to flee with their machines and bitcoins, seeking new opportunities in the United States.

3. The US market, once overshadowed by Chinese mining machines, saw an opportunity, and aggressively occupied mining resources in Texas through large-scale investments, leading to a surge in computing power. Numerous Chinese miners and institutional investors with Wall Street backgrounds joined the industry, reshaping the dominance of global computing power pools and cryptocurrency exchanges.

Surviving miners can be roughly divided into energy-based miners, institutional investment-based miners, traditional well-established mining companies, and emerging NASDAQ-listed mining companies. Long-standing mining companies have displayed resilience due to their understanding of the industry, control over risks, and timely anticipation of market cycles. The US has completed its strategy of dominating bitcoin mining and exchanges, with the final step of equipment manufacturing within US borders only a matter of time.

VI. Mining Business and Strategy

1. Three Major Risks in Mining Business

(1) Risk of Policy and Regulatory Transactions: The mining business, both domestically and internationally, carries high risks due to uncertainty at the policy level. Legal matters, tax compliance, trading with fiat currency and BTC, and handling dirty coins all pose unpredictable challenges.

(2) Risk of Electricity Price and Power Supply: The profitability and investment recovery speed of mining largely depend on stable and low electricity prices. Ensuring a 24/7 stable power supply is crucial for maintaining profitability.

(3) Risk of Partners: The high profitability in the mining industry can attract opportunistic partners driven by greed. To mitigate the risk of “dog-eat-dog” scenarios, it is essential to avoid collaborating with short-term opportunists, speculators, or unfamiliar clients.

2. Selection of Mining Business Partners: Three Types of Partners

(1) Resource-based Clients: Well-known local enterprises and entrepreneurs with energy resources, social status, and integrity make reliable partners. They are unlikely to engage in illegal activities and can help establish relationships with local governments, benefiting the sustainable development of mining operations.

(2) Emerging Listed Companies (Clients): Standardized, professional, technologically mature, operationally efficient, financially compliant, and institutionally backed North American mining companies make excellent strategic partners with a focus on reputation and long-term development.

(3) Established Mining Enterprises: Experienced operators in the mining and cryptocurrency market, possessing deep industry knowledge and technical expertise. Collaborating with them can enhance the capabilities of mining machine manufacturers, although it may require careful attention to avoid being taken advantage of.

3. Reasons to Engage in Mining Business

(1) Bull Market Benefits: During bull markets, mining businesses can generate continuous profits (BTC) for manufacturers, leading to increased revenue volume, enhanced market value, and diversified operations.

(2) Bear Market Adaptability: In bear markets, deploying machines for self-mining in mining farms can absorb the excess production and reduce inventory while maintaining low-level operating income. This strategy serves as a shock absorber for the supply chain.

(3) Hashrate and Hashrate Business: Building hashrate platforms and engaging in hashrate sales businesses offer opportunities for advanced business models beyond simple mining machine manufacturing.

4. Future Mining Sites

(1) United States: The US government’s actions against cryptocurrencies, including mining, create uncertainty for the industry’s future. Political and regulatory challenges make investment or establishment of mining facilities in the US risky.

(2) Kazakhstan: Once a thriving mining industry, Kazakhstan has implemented unfriendly policies, leading to a decline in its global computing power contribution. Political influences and corruption are factors to consider.

(3) South America: Some countries in South America, like Uruguay, Paraguay, and Mexico, offer abundant hydroelectric power resources with low electricity costs and relatively friendly policies. However, political stability and transparency are concerns.

(4) Middle Eastern Arab Countries: Countries in the Middle East offer cheap electricity prices and favorable policies for mining. However, they also face challenges related to resource monopolies and bureaucratic formalities.

(5) Northern African Countries: With abundant electricity resources and a lack of industrial development, mining can contribute to rapid economic growth. However, political instability and security risks should be carefully evaluated.

(6) Russia: Russia has ample power resources and a developed mining industry. However, US sanctions have affected its business environment and contractual integrity.

(7) Iran: Iran has been involved in mining using second-hand equipment under national control.

VII. Mining Machine Manufacturers Going Global: Pursuing Both Globalization and Local Strategies

The world economy has flourished under the development of globalization in the past 30 years, especially benefiting developing countries led by China. Rapid economic and technological growth has made them beneficiaries of globalization. Since China banned the mining industry in 2021, regions such as North America and Central Asia have increased support for mining, and the once prominent “mining capital” Sichuan Province on Chinese internet has given way to Texas in the United States. Various mining machine manufacturers are seeking paths to go global. In my opinion, it is completely correct for mining machine manufacturers to adhere to a strategy of globalization in terms of their business operations. The key lies in how to implement this strategy and which path should be taken.

1. Pursue both hands firmly: A strong local talent pool and a solid local economic foundation are essential prerequisites for venturing abroad successfully. Only with these foundations can companies have the ability to go out into the world steadily. Globalization requires reserves of talent, economic support, and material resources; otherwise, even if they manage to “globalize” reluctantly, it will only be short-lived due to insufficient endurance at best.

2. Pathway towards globalization: Looking back at China’s economic development over the past thirty years, apart from the photovoltaic industry in traditional sectors, most Chinese enterprises have been limited to providing cheap labor services or exporting commodities; there are few examples of original technological products or companies going global successfully. In recent years, successful benchmarks in terms of going global can be found among internet and communication equipment industries such as Huawei Technologies Co., Ltd., Transsion Holdings Limited (formerly known as Tecno Telecom Limited), ByteDance Ltd., and miHoYo Co., Ltd., representing entertainment-oriented companies going global. The uniqueness of the mining machine industry lies in its combination of high-end manufacturing and emerging finance despite facing numerous doubts. Over the past few years, due to the high degree of monopoly in the industry, mining machine manufacturers have only focused on exporting products while lagging in supporting service capabilities. At the same time, the cyclical switch between a strong seller’s market and a strong buyer’s market has not provided sufficient motivation for mining machine manufacturers to develop their service capabilities. However, since 2021, with the rise of institutional customers, mining machine manufacturers have gradually realized the importance of services.

Currently, some mining machine manufacturers have started establishing service stations and subsidiaries in overseas markets, which is a positive development. However, it is also important to note that globalization still requires a local perspective; adapting to local conditions by building teams familiar with local regulations, practices, and culture is crucial for maintaining long-term customer relationships and gradually constructing a moat of service capabilities. These achievements cannot be accomplished overnight but require steady progress in order to replicate successful management models and business models. Rome was not built in a day; likewise, there is often only one path towards success while each road leading to failure has its own pitfalls. From what I have witnessed firsthand, companies that expand recklessly without careful planning will eventually deplete their resources and end up empty-handed.

3. The relationship between the US government and cryptocurrency is complex. The US government obtained a large amount of Bitcoin by cracking down on the Silk Road. The anonymity of cryptocurrencies and their use in illicit activities, as well as providing funding channels for sanctioned countries like Iran and Russia, are not tolerated by the US government. They will not allow any challenge to the dominance of the US dollar, just as they are unwilling to accept China’s peaceful rise. After a series of scandals involving companies like Three Arrows Capital and FTX, it is evident that the Democratic Party-led US government has made a decisive move against Coinbase, Binance, Tether, and others involved in cryptocurrency.

Tether and its strategy: As the world’s largest stablecoin, maintaining stability in the BTC market is crucial for its development. According to information from a senior industry practitioner, a high-ranking executive at Tether recently revealed their plan to allocate a fixed percentage of their $4 billion annual profit towards purchasing BTC. Simultaneously, they also intend to expand their mining operations by investing hundreds of millions of dollars annually to support computational power infrastructure and mining equipment manufacturers. In this regard, Tether has become an indispensable figure in this industry — much like Don Quixote himself! It can be boldly speculated that amidst concerns about bank runs affecting crypto-friendly banks, Tether’s ambition may be akin to playing “Tether Reserve” within the crypto industry — solidifying its position as an unrivaled leader through one critical market intervention after another.

VIII. Speculating about the Near Future

The development of Bitcoin remains beyond the control of any single government or institution, especially amidst the conflicts between Eastern and Western civilizations, geopolitical tensions, currency monopolies, energy shortages, and the new Cold War under deglobalization. In such a world, cryptocurrencies, particularly Bitcoin, may be more necessary than ever.

The Cycle of “Institutional Bulls”

From 2010 to now, Bitcoin has been declared “dead” unilaterally 474 times (see 99Bitcoins), which is enough to show that Bitcoin is like a cockroach that cannot be killed. What I have observed is that after a series of scandals and failures, there are signs of resurgence for Bitcoin. The US government and institutional investors often have their own opinions on Bitcoin. In the eyes of the US government, dollar hegemony is paramount, and Bitcoin at most serves as a black glove; don’t even think about whitewashing it. However, institutions see making money as truly exciting. BlackRock Group — the world’s largest asset management company — personally promotes Bitcoin spot ETFs, and its application records for ETFs have had both successes and failures. If successful in the near future, it will likely witness another bull market driven by institutions in 2021.

Institutional entry will further drive changes in the capital structure of the Bitcoin industry. In earlier years, those involved in cryptocurrency trading were mostly speculative gamblers who either made huge profits or lost everything within a short period of time. Therefore, the industry has always been associated with only a few individuals getting rich quietly. In late 2018 and early 2019, there was gradually an influx from traditional Wall Street financial funds, family funds (old money), and companies with traditional energy backgrounds into this field. The composition of this industry began to change gradually. With old money entering, the price also started dancing along with Wall Street. Moreover, this also means that the volatility of Bitcoin will be reduced.

Bitcoin’s “Surname” Doesn’t Matter, Making Money Does

When it comes to the compliance of cryptocurrencies, it has always been volatile, with the SEC and CFTC constantly at odds. In recent days, US senators will introduce a new revised version of cryptocurrency regulation to expand the power of the CFTC. It stipulates that even decentralized assets can be regulated as commodities as long as they do not involve corporate debt and equity. It seems that Americans also understand “the wisdom of later generations,” so the debate over what Bitcoin should be called is temporarily set aside. Currently, inflation in the United States remains high, there are no takers for soaring US bonds, and further damage to the credibility of the US dollar. Quietly selling off coins is one measure taken by the US government to recover dollars and boost confidence. Therefore, in this context, whether cryptocurrency compliance is truly compliant or just old wine in a new bottle remains to be seen. However, as long as liquidity remains intact, we can continue playing music and dancing.

Asia Remains a Key Player

In 2021, China dealt a heavy blow to Bitcoin; two years later, Binance and Coinbase faced lawsuits from the United States. Now, China tacitly approves Hong Kong’s support for Web3.0 and cryptocurrencies — indicating that governments around the world have an ambiguous attitude towards cryptocurrencies. Over these past two years, funds have started flowing back into Asia — Singapore is thriving while Hong Kong refuses to give up its position as Asia’s financial leader. Singapore and Hong Kong are competing fiercely for capital flow, and undoubtedly, cryptocurrencies emerge as their biggest winner.

It’s worth noting Japan’s “Funds Settlement Act Amendment Bill,” which was passed by vote in June 2023, becoming the first country in the world to enact stablecoin legislation. In the foreseeable future, Asia will remain an important player on the crypto industry map. Furthermore, under the backdrop of a global economic downturn, more governments from small countries in Africa and South America are adopting an open attitude.

In the new Cold War landscape, the US government’s regulation of Binance and Coinbase has yielded different results. Binance’s market share in the US is now only 0.9%, while Coinbase’s market share jumped from 48.4% to 55% in June. In the covert battlefront of cryptocurrencies, both China and the United States may support their respective centralized exchanges to attract overseas funds and take necessary measures to prevent massive capital outflows.

In Central Asia, Kazakhstan has always attracted a lot of attention. In 2021, it became the region with the fastest-growing hash rate but then experienced a significant decline due to power shortages and policy reasons. Over the past year, Kazakhstan’s government collected $7 million in taxes from cryptocurrency mining entities. However, as of April this year, tax revenue from crypto mining was $541,000 — if this trend continues, it can be estimated that the total tax revenue for all of 2023 will be around $1.62 million or so, mainly due to the policy crackdown on the crypto mining industry. It is understandable for a resource-rich country to utilize surplus electricity for profit. Previous policies were mainly responses to illegal mining activities and low electricity taxes for crypto mining. The cryptocurrency mining industry, as one source of tax revenue, will not be completely banned; rather, the intensity of policy crackdown depends on how much benefit can be derived by governments.

What I see is that Kazakhstan plans to introduce new regulations, including miner licenses, licensed exchanges, and pools, which will further reduce tax evasion and increase transparency within the industry instead of expelling it altogether. The current sharp decrease in mining taxation also indicates that it will take some time for the country’s mining sector to recover confidence and rebuild the capital base. In addition, improving the efficiency of electricity utilization requires the introduction of more advanced machinery and equipment. Therefore, soon, it is possible to see some relaxation from the government regarding import value-added tax on mining machines and digital mining fees.

The US Government’s Regulation and Central Asia

The US government’s regulation of exchanges like Binance and Coinbase has resulted in varying outcomes. Central Asia, particularly Kazakhstan, has attracted attention in the mining industry. While it initially experienced growth, policy and power issues led to a decline in the hash rate. Kazakhstan’s approach to crypto mining taxation has evolved, and it may introduce new regulations to bring more transparency to the industry.

Green Mining and Sustainability

After the previous “crypto winter,” the Bitcoin mining industry has entered a consolidation period. The current situation facing the Bitcoin mining industry includes several key aspects:

1) Political correctness: Sustainability issues of the Bitcoin mining industry are under scrutiny, especially concerning carbon reduction frameworks. This has become a significant concern for the industry’s future.

2) Funding sources: Bitcoin ETFs present both opportunities and challenges for mining. Their launch will likely drive-up coin prices and benefit miners’ earnings. However, they also provide institutional investors with easy access to Bitcoin investments, potentially reducing their interest in large-scale mine construction and equipment procurement.

3) Listed mining stocks seeking new narratives: Some listed mining companies are exploring “diversified income” approaches, such as repurposing mining graphics cards for AI applications.

Today, with the influence of the mighty U.S. government, the Bitcoin mining industry cannot afford to be complacent and must adopt more environmentally-friendly practices. Addressing sustainability concerns in mining is a crucial step towards regulatory compliance and long-term survival. This means that only companies with strong financial resources and deep government relationships can thrive in the long run.

Currently, listed companies within the sector are taking proactive steps, such as establishing the BMC Mining Association to regularly disclose operational data. They are also forming professional lobbying teams to highlight ongoing efforts to optimize power structures within crypto-mining and emphasize their role as supporters of renewable energy sources.

Moreover, these mining companies are actively seeking access to cheap hydroelectric power outside North America, particularly in regions like Northern Europe. Collaborations with energy-based enterprises, especially those involved in renewable energy, are being strengthened to further promote green mining practices.

Lastly, Environmental, Social, and Governance (ESG) considerations are becoming standard narratives for future listed companies, and cryptocurrency mines should not be an exception. Establishing organizations similar to green foundations that allocate funds annually could serve as a proactive “declaration” to decision-makers in America, seeking greater legal and public influence and showing a commitment to sustainable practices.

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