Galaxy Digital Research Report: The correction of Bitcoin is beneficial to the market development in the long run

On May 21, the high-level committee of the Chinese government put forward the goal of "cracking down on Bitcoin mining and trading" in the policy outline, which brought additional uncertainty to the cryptocurrency market after major adjustments. Core content-zce 1. In a notice issued after a recent policy meeting, the Chinese government's Financial Supervisory Commission stated that a "crackdown on Bitcoin mining and trading" is coming. 2. Miners are taking this news seriously, and we have seen various responses from miners to accelerate their migration to full capitulation. 3. As miners migrate to areas with cheap hydropower every year, the hash rate will drop in the short term. 4. China's cryptocurrency ecosystem will continue to survive, but will become smaller and more strictly regulated, and the government is looking for a new balance. 5. As the government imposes more restrictions, the hash rate will mainly transfer to Kazakhstan, Russia and Pakistan, but North America will also benefit from the migration. 6. An outright ban on Bitcoin is unlikely, but restrictions and government scrutiny are imminent. 7. As the hash rate becomes more distributed, the Bitcoin network actually becomes more robust, which benefits Bitcoin in the long run. What happened in China? Huobi will recast PGALA Token on the TRON network: On November 7th, Huobi issued a notice on recasting PGALA Token on the TRON network: Since the pGALA Token contract uses an upgradeable transparent proxy (Transparent Proxy) model, and the pGALA proxy contract The private key of the owner of the Admin role has been leaked on Github, thus losing the authority to configure the contract, and the pGALA contract is at risk of being attacked at any time, posing a huge security risk. In order to ensure the interests of PGALA holders on the platform, Huobi Global decided to use the total amount of pGALA actually held by platform users: 6,211,014,582.57982347 as the total circulation, and recast 100% decentralized and 100% circulating PGALA Meme Token on the TRON network ( PGALA), the new contract address is: TF7Ncj2PwKYxVthJaCZCRS98XgnXhJ347h After the contract replacement is completed, the deposit and withdrawal of PGALA will also be open at 2022-11-07 23:00:00 (GMT +8), and the tax burning mechanism will not be affected in any way. The destruction will also be carried out on the new contract, the destruction address is: T9yD14Nj9j7xAB4dbGeiX9h8unkKHxuWwb. [2022/11/8 12:29:38] On May 21, at the meeting of the Financial Stability and Development Committee (“FSDC” or “FSDC”) of the State Council of China, chaired by the Vice Premier of China, a new government policy was announced , Restrict Bitcoin mining and transactions. At 10:00 p.m. Beijing time on Friday, the committee issued a statement detailing several goals for the financial system. The second part outlines the country's need to "prevent and control financial risks," and includes "combating bitcoin mining and trading" as a specific item on the list of priorities. Web3 game studio Gallium Studios completed $6 million in financing: On August 22, Web3 game studio Gallium Studios announced the completion of $6 million in financing. Griffin Gaming Partners participated in this round of financing. Gallium Studios was founded by legendary video game designer Will Wright, creator of The Sims series, and Lauren Elliott, creator of Where's Carmen Sandiago? simulation game. Gallium’s projects include VoxVerse, a metaverse designed for Gala Games, and Proxi, a memory simulation game, both of which use blockchain technology. It is reported that Gallium Studios has reached a cooperation with Forte.io, a blockchain technology company, to enhance players' ownership in the game economy and provide players with seamless access to blockchain and Web3 technologies. [2022/8/22 12:41:37] The Financial Development Committee was established in November 2017. It is a high-level government agency that coordinates financial supervision. Its members include Liu He (Vice Premier), Yi Gang (President of the People’s Bank of China ) and Ding Xuedong (Deputy Secretary-General of the State Council), as well as chairmen of securities, foreign exchange, economic affairs and national development regulators. Bitfinex will list QuickSwap and Gala Games: According to official news, Bitfinex will soon list QuickSwap (QUICK) and Gala Games (GALA). [2022/3/15 13:57:15] In fact, this is not the first time that the Chinese government has imposed restrictions on Bitcoin. Since 2013, when the People's Bank of China banned financial institutions from working with cryptocurrencies, over-the-counter trading has been the main fiat gateway into cryptocurrencies. In addition, ICOs and exchanges were restricted by Chinese policies in 2017, Huobi and OKEx suspended trading and established offshore entities in response to measures, while Binance Exchange withdrew from the Chinese market before the ban. In 2020, the executives of Huobi and OKEx were interviewed, and the OTC counters were temporarily closed. OKEx bore the brunt of the scrutiny, with the exchange forced to suspend withdrawals. As things normalize, China's cryptocurrency ecosystem is in a precarious equilibrium, but an equilibrium nonetheless. Fiat-to-crypto trading remains banned, but over-the-counter trading remains the gateway into the asset class. Exchanges usually use USDT to denominate transactions and avoid interaction with the banking system, but they can provide referral services for OTC transactions and obtain a relatively smooth user experience. Exchanges continue to operate, and some even maintain close ties with governments. China remains the main location for most hardware manufacturers and mining pools, and is the geographic center of the mining industry. GalliumStudios and ForteLabs have reached a partnership to develop the NFT game Proxi: Jinse Finance reported that game designer Will Wright is developing a new game called Proxi that allows players to create and own their content-zce in the form of NFT. Gallium Studios, the company behind the popular game The Sims, has entered into a partnership with DLT gaming company Forte Labs to develop a new game called Proxi. In this blockchain and AI-based game, players will be able to visualize newly created memories with 3D drawings, photos and audio files. Memories will be used to create a world and a thought. (u.today) [2021/9/28 17:13:08] Compared with the latest government announcements, the above-mentioned policies have both similarities and differences. The differences are mainly reflected in two aspects: In addition to traders, this policy is more aimed at miners, and the policy is shared by high-level government committees with important influence. While the policy implications are still brewing, conversations with local sources suggest the latest announcement could lead to regulatory action by local governments on the heels of central government policy. China is not a single entity: the central government operates separately from provincial governments, which in turn are distinct from companies incorporated in China. The provincial restrictions are set to remain in place until 2021, with China’s Inner Mongolia province recently banning bitcoin mining as part of a series of restrictions imposed on energy-intensive industries in Inner Mongolia. As the central government's policy is announced, other provinces are likely to follow suit. Central government policies are usually slow to enact; state restrictions on cryptocurrency trading and mining are almost certain to come, but outright bans on both seem unlikely. Galaxy Digital and Alameda Senior Trader: Crypto Markets Will Usher in a Recovery: The senior trader at Galaxy Digital and Alameda Research predicts a recovery in the crypto market once the latest wave of bad news fades. While they believe regulatory uncertainty has deterred many institutions from entering the crypto market, once they do, increased demand for the limited supply of BTC should drive prices to new highs. (cointelegraph) [2021/6/25 0:05:47] Due to policy restrictions, we will see the exodus of Chinese miners, especially those who rely on coal power. The drop in hash rate was initially due to seasonal migration, but later permanently migrated abroad. Hashrate will move primarily to Kazakhstan, Russia, and Pakistan, but will also move to North America and other regions. Continued volatility is likely to continue as the situation develops. China's cryptocurrency ecosystem will survive, but will be smaller and more regulated, as the government seeks a new balance. How did the market react? As we wrote in our May 20 report, "Assessing Corrections in Cryptocurrencies," markets are trading on edge following a major correction over the past two weeks. It also further weighed on the market due to uncertainty over Chinese policy news. The FSDC announcement will be made on Friday, May 21 at 10:00 pm China Standard Time (GMT+8), or 10:00 am Eastern Standard Time (GMT-5). BTC fell 12.5% in the first hour and was down 20% by 2 p.m. ET. Bitcoin prices continued to slide over the weekend, bottoming out around $31,100. Due to the late announcement and little information from regulators, more clarification is expected next week. According to our sources, some miners are liquidating their machine inventory and panic selling their bitcoins. This was confirmed by on-chain data showing increased outflows from miners’ wallets, suggesting that miners’ sell-offs played a role in the volatility. China Mining Industry Dynamics (1) Distribution of Hash Rate Bitcoin is permissionless, and anyone can join as a user, verifier or miner. Because of this, Bitcoin is a global industry. Since anyone can join and there is no centralized directory of participants, it is very difficult to estimate the breakdown of the hashrate distribution. Miners tend to operate in regions where electricity is cheap. Because of this, the mining industry is clustered in areas with low-cost electricity such as China, Russia, and North America, but it is difficult to estimate the location of miners. The heavy representation of Chinese miners in the Bitcoin hash rate is often a point of contention. Chinese companies have traditionally led the mining industry, not only because of their ingenuity, but also because of cheap electricity and the network effects created by the presence of ASIC manufacturers and mining pools. (2) Cheap electricity China's power grid is hydropower centered on the Three Gorges Dam in Sichuan. From May to October, the Sichuan region is in the rainy season, reducing the cost of hydropower. In northern and western China, electricity generation throughout the year is economically competitive by global standards; electricity prices in the Sichuan Basin are economically competitive during the rainy season. To take advantage of this, Chinese miners excavate seasonally, moving machines between Inner Mongolia/Xinjiang and Sichuan valleys each year, optimizing for the lowest cost of electrical energy. The great migration of miners usually manifests itself as a decrease in the hash rate of the machines as they are in transit. The rainy season has started this year and we will continue to see the hash rate drop in the coming weeks. Due to the way the hash rate is estimated, there is a lag period of about seven days for accurate observations, and real-time estimates are less reliable and accurate. Miners are prepaid on a monthly basis, so we expect the decline in hash rate to be most severe towards the end of the month, and this data will be accurately observed at the beginning of next month. As Sichuan Basin miners come back online, there may be some recovery from the hash rate drop. However, it will take some time for miners who have been temporarily phased out due to government regulation to come back online in other jurisdictions, so the hash rate may continue to decline. In view of the scale of China's mining industry compared with other countries, carrying capacity has become an important bottleneck. Contrary to the past year or so, the factor limiting growth in hash rate is a severe shortage of machines. (3) ASIC market Almost all competitive application-specific integrated circuit (ASIC) manufacturers are in China, which provides Chinese miners with faster access to machines. There is little publicly available data on manufacturers' machine sizes, in large part because the opacity of the market makes price discrimination worse. The traces left by miners on the blockchain provide some clues. Based on data analysis, we can estimate the percentage of hash rate provided by some types of hardware. Today, the technology is most notably used in the first two generations of Bitmain’s flagship product, the Antminer S9. At the peak of its dominance in June 2018, Antminer S9s and related hardware were responsible for about 75% of the network’s computing power. Even today, after two generations of hardware, S9s and related hardware contribute about 31% of network computing power. Data derived from nonce analysis has been corroborated by CoinShares and Cambridge at this point in time. In the future, this technology may be used to identify other types of hardware, including new models of miners from Bitmain and other manufacturers, to better estimate network health and decentralization at the hardware level. In view of last week's policy impact, ASIC resellers are leaving China. B.top, a reseller associated with the mining pool BTC.top, announced that it would stop serving Chinese customers, as did machines from the Huobi mining pool. We expect a large number of machines to be sold on the secondary market, which could lead to a dislocation between the Chinese and overseas mining rig markets as Chinese miners clear their inventories. What does this mean for Bitcoin? Bitcoin is resilient and unaffected by any single country's regulation. In the short term, we will see the hash rate continue to drop as miners continue to migrate their rigs, or even shut down machines. Government bans on stores of value have been around for a long time. In 1933, President Roosevelt signed Executive Order 6102, prohibiting private entities in the United States from owning gold, and this ban did not last, nor did private ownership of gold. As of 2021, gold continues to hold its value. Bitcoin’s censorship resistance makes it more unlikely that governments will effectively suppress ownership of the asset globally. In the long run, this benefits Bitcoin. Essentially, the Bitcoin network will emerge from these events stronger and more decentralized.

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