Why is it said that "mining capitalization" is an inevitable trend?

The author of this article, Liu Jibin, is a senior Bitcoin miner. The original title is "Is 'Mining Capitalization' a Flash in the Pan or an Inevitable Trend?"

Since 2020, with the skyrocketing price of Bitcoin, several publicly listed companies focusing on virtual currency "mining" have emerged, such as RIOT Blockchain, Bit Digital, and Marathon Patent Group, whose stocks have surged and gained significant attention, becoming a highlight in the capital market. Coincidentally, the long-silent 500.COM, a well-established Chinese concept stock on the New York Stock Exchange, suddenly announced new personnel appointments on December 21, making a high-profile entry into the blockchain and cryptocurrency fields. On that day, 500.COM's stock rose by as much as 134%, triggering a trading halt. So, is the combination of "mining" business and the capital market merely a way for individual companies to ride the wave of high coin prices, or is it a trend based on the situation?

Some commentators believe that the rise of numerous "mining" themed listed companies, while showing strong short-term performance, does not reflect their true commercial value. It is merely a fleeting phenomenon brought about by rising coin prices, and once Bitcoin experiences a significant correction, these companies will revert to their original state. The long-term volatility of coin prices will lead to unstable earnings for listed companies, making "mining" as a business model still immature for the capital market.

However, with the gradual rationalization and relaxation of the national attitude towards "mining," the continuous accumulation of global consensus value for Bitcoin, and the increasingly mature investment mindset and organizational capabilities of "miners," the "mining" business is now more aligned with the temperament of capital than ever before, making it more attractive to the capital market.

1. Policies Becoming More Relaxed, Compliance in "Mining" Becomes the Mainstream.

Domestically, "mining" has long been synonymous with "gray areas" and "borderline activities." From defining "mining" as a backward technology and listing it among industries to be eliminated, to removing it from the elimination directory, and then to policy support for mining, this series of subtle changes is having a significant impact on the "mining" field. In Sichuan, various cities such as Ganzi, Ya'an, and Liangshan have successively supported blockchain "mining," establishing hydropower consumption demonstration zones. Taking the large blockchain big data center in Ganzi, invested in and operated by the listed company 500.com, as an example, this so-called "mining site" in the industry is firmly exploring the path of compliance. In addition to formal electricity approval, this data center also possesses complete qualification procedures granted by relevant government departments, including park approval, project filing, environmental assessment, energy assessment, safety assessment, water conservation, fire safety, and IDC licenses, essentially aligning with the qualifications and standards of a standard IDC data center.

As the "mining" business logic "channel," cryptocurrency exchanges are also beginning to actively embrace regulation and explore compliance. On December 15, BC Technology Group (863.HK) subsidiary OSL became the first to obtain a virtual asset license (also known as a digital asset license) issued by the Hong Kong Securities and Futures Commission, also becoming the first licensed digital currency exchange in the country; mainstream domestic exchanges like Huobi, OKEX, and Binance are continuously strengthening compliance and security strategies to gain policy support by cooperating with national security supervision. For example, as early as the beginning of 2019, Huobi launched the "Technology Assistance Police Channel," providing important data and strong technical support for judicial authorities in data analysis, evidence collection, and fund tracking in cases of blockchain fraud and money laundering.

The compliance efforts of mining sites and exchanges are the key and difficult points in the pursuit of compliance in the "mining" business. This "front and back," "real and virtual" compliance trend, while not aimed at catering to capital's tastes, will be perceived by capital. In fact, capital has previously held an ambiguous and conflicted attitude towards "mining": both enamored with its "beauty" and feeling it lacks "social standing." From this perspective, the gradual "normalization" of various sectors of "mining" also resolves the "threshold" issue for the capital market to accept "mining" businesses.

2. Consensus Continues to Strengthen, Stable Price Increases Promote Stability in Business Models.

The stable increase in Bitcoin's value is undoubtedly key to strengthening the "mining" business model, and the consolidation of Bitcoin's value ultimately relies on the enhanced consensus among a wide range of investors, especially various financial institutions.

Since 2020, numerous asset management institutions worldwide have aggressively acquired Bitcoin, becoming the main buyers in the Bitcoin trading market. Grayscale has continued to buy, consistently increasing its Bitcoin holdings without selling; investment institutions like Block.one (the parent company of EOS), Microstrategy, and One River have also shown their "Piyao" nature, quietly increasing their Bitcoin positions. Meanwhile, traditional financial institutions such as banks, insurance companies, and payment companies are also significantly strengthening their layouts in the cryptocurrency market. Singapore's DBS Bank has launched fiat trading services for mainstream cryptocurrencies; Massachusetts Mutual Life Insurance Company has purchased Bitcoin for its general investment accounts; the cross-border payment platform PayPal allows users to buy, sell, and hold Bitcoin on its platform; Visa has also announced support for cryptocurrency payments; and Square's CEO Jack Dorsey even believes that "Bitcoin will ultimately become the single currency in the world within the next decade." The long-term layouts of numerous financial institutions in Bitcoin significantly promote the consensus around Bitcoin, greatly enhancing investors' confidence in Bitcoin's value while reducing circulation by "hiding" a substantial amount of Bitcoin, reinforcing Bitcoin's "gold" attributes of value preservation and appreciation.

Based on the aforementioned changes in attitudes and behaviors towards Bitcoin, the business model of "mining" entering the capital era is becoming increasingly clear. We can assume a few judgments as the foundation for the establishment of this business model:

First, it is assumed that Bitcoin has no probability of going to zero; Second, it is recognized that it will maintain a long-term upward trend; Third, significant fluctuations in coin prices will exist long-term and intermittently.

The actions of these investment institutions in acquiring Bitcoin represent their strong agreement with the first two points, and the firm actions of these institutions subtly guide this trend. In contrast, the third point is merely a matter of cash flow capacity, which is relatively easy for capital to resolve.

3. "Miners" Becoming More Mature, No Longer "Wu Xia A Meng."

Early "miners" were quite lovable and simple; from their perspective, "mining" was about making money, and the "posture" didn't matter much. Once they saw an opportunity, they just went for it without overcomplicating things. However, a series of cases show that "mining" is like playing an online game: at the beginning, the difficulty is low, and "bare running" is invincible; if you can withstand a few hits, as the game progresses, the boss levels get higher, and the chances of game over increase. Wouldn't you choose a helmet for defense, buy a staff for attack, and add some rubies to boost your health so you can endure a few more hits? In the "mining world" version 2.0, capital support may become a crucial factor for players to "clear the game":

(1) Increase health points: A thicker health pool can withstand turmoil, with redundant funding plans in place to stock up during price crashes, effectively defending against the downward pressure caused by price fluctuations;

(2) Increase physical attack: Capital has always been a tool for replicating models and expanding production. As long as the stability and feasibility of the model can be proven to the capital market, capital can provide more "bullets" to enhance the combat power of "miners."

(3) Increase magical power: Who says "mining and monster fighting" can only be a head-on clash? Compared to the early simple "mining" model, "capitalized mining" is a dream strategy that doesn't require close combat.

(4) Team bonuses: Capital is a platform and comes with its own halo. High-quality mining sites, sticky mining pools, and institutions holding large quantities of mining machines, when integrated with capital platforms, will inevitably release a synergy effect of 1+1 greater than 2!

Compared to the "martyrs" who faltered on the beach at the end of 2018, the "survivors" and "latecomers" have accumulated enough cases of their own or others' blood. They will treat the relationship between "mining" business returns and risks more rationally and will be more aware of the enhancement effect of "capital" as a premium equipment for "mining and monster fighting." Previously, it was a matter of "not daring to think" (compliance issues difficult to resolve) and "not wanting to think" (high mining returns with great winning chances), but now it is about going with the flow and being imperative. It is foreseeable that in the near future, more leading resources in the "mining" industry chain will undergo capital integration.

"Mining" was never about "lying down to win," and it certainly won't be in the future. Only by participating in the wave of "mining capitalization" can one maximize the avoidance of ultimate risks and enjoy business dividends. With the support of capital, a closed-loop "mining" model with high-quality mining sites + self-owned mining machines of equal load + redundant funding plans is clearly a more stable, lasting, and imaginative business model, which will undoubtedly drive another leap in the "mining" ecosystem.