Between the arrival and departure of the Bitcoin spot ETF, the SEC has successfully controlled market sentiment, and people’s focus has shifted to BlackRock and the long-short battle, but the plight of miners has been ignored.
Introduction:
Mining concept stocks soar 56%: Mingwen drives Bitcoin mining profits, mining companies “lever up” to buy mining machines aggressively.
Background:
The future of Bitcoin mining: Is the mining pool the ultimate challenge?
Table of Contents:
Mingwen’s popularity brings huge profits to miners
The shifting pricing power: East to West, Satoshi Nakamoto to miners to Wall Street?
Concentration of mining pools, the masses join in
Bitcoin still lacks an ecosystem
Conclusion: The sacredness will definitely go bankrupt
Between the arrival and departure of the Bitcoin spot ETF, the SEC has successfully controlled market sentiment, and people’s focus has shifted to BlackRock and the long-short battle, but the plight of miners has been ignored.
In 2023, against the backdrop of the Bitcoin halving, miners chose to support Mingwen in order to increase revenue from transaction fees outside of mining. However, the arrival of the spot ETF will not harm the interests of miners in terms of currency price. It may even help them increase passive income:
With the approval of the spot ETF, more traditional investors and individual retail investors can legally purchase Bitcoin, supporting the market price of Bitcoin.
Second-layer protocols like the Lightning Network will receive a boost in legalization, and activities on the small-value, high-frequency chain will continue to increase mainnet transaction fees, thereby stabilizing the ecosystem.
Unlike Ethereum’s transition to PoS, where miners were powerless to resist and projects like ETHW ultimately came to nothing, the power of Bitcoin mining machine manufacturers + miners + mining pools is not weak. In the past block size expansion wars and the recent Mingwen battle, miners’ dominance over Bitcoin is not inferior to that of Bitcoin manufacturers and core development teams.
However, compared to giants like BlackRock, the immense scale of the entire crypto market is not enough. Although Bitcoin miners don’t openly express their grief, looking at the trend of their holdings, they have been continuously selling off their holdings in the past two months. Although this may be due to concerns about the delay in the approval of the ETF, leading to a price decline, miners have realized the problem in the long run.
The pricing power will shift from on-chain + miners’ combination to off-chain + Wall Street’s hands.
The core of Bitcoin’s pricing power is computational power.
After the decision in 2021, computational power inevitably shifted to the West, especially the United States. This is no longer a topic of debate. In contrast to geographical distribution, mining pools have continued to concentrate. Driven by capital efficiency, miners and mining pools have formed alliances. Miners still have control over mining machines, while mining pools are responsible for daily maintenance. The operating logic is very simple:
Miner’s income = (mining machine cost – electricity cost – mining pool fee) x number of mining machines x depreciation rate
During the entire bull and bear market, the so-called shutdown price is most dangerous for mining pools and mining machine manufacturers, as miners can only suffer floating losses. As long as they hold on until the bull market, they can always sell their coins to break even. However, mining machine manufacturers and mining pools provide “water-selling” services, and once their income fails to cover expenses, they face a crisis.
Essentially, the losses incurred by miners come from not being able to cover existing expenses with income from selling coins. However, the actual expenses mainly consist of electricity costs. If necessary, selling coins can also recoup some funds.
Bitcoin’s first block was mined 15 years ago, and large-scale Bitcoin mining has been around for about 10 years. Although Satoshi Nakamoto left behind the environmentally unfriendly PoW mechanism, it has helped miners overcome at least five rounds of bull and bear cycles and is considered of great importance.
The original miners were not purely engaged in a capital game. They were mostly “gamblers” from the bottom of society, including internet cafe owners, crypto geeks, and inexplicable pioneers. The roughness and chaos of the early market created the myth of overnight wealth. The cost of building positions with MicroStrategy was in the four or five digits, while their costs were even single digits, making huge profits in any way possible.
But now everything is about to change.
Bitcoin’s price will be driven by computational power, shifting towards market sentiment and Wall Street.
Bitcoin spot ETFs, futures ETFs, and even ETFs for crypto mining companies are not the same. This will fundamentally change the pricing and execution logic of Bitcoin.
Driven by the motivation of capital appreciation, the trend of concentration of existing Bitcoin chips will further worsen. Compared to other currencies, the concentration of Bitcoin holdings is already quite dispersed, and coupled with the massive computational power of Bitcoin, achieving a 51% attack or control of the Bitcoin network is almost impossible.
However, this is the logic of PoW. If a large number of capital giants enter, the Bitcoin network will to some extent become a PoS mechanism. Of course, this does not mean that the generation of Bitcoin will become a staking mechanism. It means that if the chips become excessively concentrated, it may backfire. In theory, spot trading is the basis for pricing derivatives, but under a long transmission chain, there may be an imbalance in the adjustment and pricing mechanism.
One can recall the subprime crisis in 2007, where subprime meant continuously packaging junk bonds based on underlying conditions and selling them. Initially, mortgage-backed securities no longer had a significant regulatory effect on the market. Bitcoin also has the objective conditions to repeat this situation.
Before the arrival of the spot ETF, it has basically shattered the pricing system established by miners for many years. People often say that Bitcoin is different from other currencies and is a unique firework. It has gradually established a religious-like sacredness among its followers. Now, once a dream shattered, everything returns to dust. Have you not noticed that you can’t even hear a miner’s voice? Perhaps they are still immersed in the excitement of Mingwen’s popularity and the joy of monetizing coins.
While the Bitcoin spot ETF maneuvers back and forth, will the power of PoW miners eventually become history?
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