2022 Year End Bitcoin Hashpower Estimate: Nudging Down to 327 EH/s on Power, Semi Delivery Schedules
A key factor determining investment returns from Bitcoin mining is an estimate of future Hashrate and difficulty. Whether directly investing in mining assets or in mining stocks, this estimate is critical. The mining investment’s share of future Hashrate determines future Bitcoin earnings. Please click here to read BitOoda’s full 2022 YE Hashpower Estimate report.
We assess Hashrate could reach 327EH/s by year end 2021, versus our prior 334 EH/s estimate. The year end 2021 Hashrate came in at 174EH/s, below our previous estimate of 198EH/s. The situation in Kazakhstan further pressures near term Hashrate. The longer lead time site development schedules in North America remain intact.
Long-term Hashrate is price dependent: profitability is a key determinant of miner balance sheet health and confidence, as well as investor funding. But in the nearer term, other constraints also apply.
We identify four constraints on Hashrate for 2022: availability of capital, mining rigs, cheap power at 240V single phase, and a supportive price environment that keeps rigs operational. We developed reasonable forecasts of each of these constraints to arrive at our Hashrate estimate, which we pegged at the lowest of the four constrained values.
We believe growth of ~208 EH/s can be funded through a combination of internal generation and external capital, although the percentage of capex fully funded already is unclear. This is in addition to replacement capex for existing capacity, which includes about 88 EH/s of announced growth by just 18 public miners who currently account for 14% of the network. This would take 2022YE network Hashrate to 382 EH/s.
We believe the semiconductor foundries could support about 112,000 wafer starts for mining ASICs in 2022. This is consistent with deliveries achieved in the past year, and would take the network to 327 EH/s, including factoring in obsolescence and failure of older rigs in the existing fleet. We find this is the operative minimum value, and thus our official 2022 YE estimate.
After adding just 24MW of net effective power capacity in 2021, we believe as much as 4–5GW of capacity addition is possible in 2022. The low net addition last year was a result of several GW going offline in China in the late spring, and speaks to the underlying ability of the market to deliver enough power at the right price and voltage. This would lead to 334EH/s by year end, coincidentally our prior, power-constrained estimate. While we see environmental and political backlash against the power intensity of Bitcoin, we firmly believe that Bitcoin has a positive role to play in accelerating the transition of the grid to renewable energy while reducing the need for taxpayer-funded subsidies. We plan to address this issue in detail with an upcoming research report.
Mining profitability has been mean reverting in the past month. The recent Bitcoin selloff is moving in the opposite direction to Hashrate, eroding miner margins. We examine BTC price / network Hashrate combinations at which the estimated 8.4 EH/s of remaining S9 machines would shut down ($35k at YE 327 EH/s), and the 45 EH/s of S17 class machines would shut down (under $20k at 327 EH/s). S19 class machines, though, can sustain profitability at $20k Bitcoin even at 400 EH/s network Hashrate.
Transaction (Tx) fees have remained lower than previously anticipated. We suspect a shift of trading from Asia to the West, coupled with a reduction in overall trading volumes, may be a factor, reducing on-chain transactions. Over time, increased Layer 2 deployment would also lower Layer 1 congestion and thus fees. We are lowering our long-term Tx fee estimates in our profitability analysis and plan a deeper dive into the issue in the coming weeks.
Our analysis suggests Hashrate growth in 2022 will be back-end loaded: 12.8 EH/s per month on average, but just 18EH/s in Q1 vs. 50+ EH/s in Q4. We also calculate theoretical Bitcoin prices needed to maintain revenue per PH/s at recent levels given our estimate of future Hashrate.
Risks to our Hashrate estimates: Upside risk is driven by easing infrastructure and semiconductor constraints, coupled with a surging price. On the downside, environmental or political headwinds could slow permitting and deployment of capacity. A sustained bear market could substantially reduce capital flows and internal generation, leading to miner defaults or an inability to accept delivery of partially funded rigs. The Kazakh situation poses near term risk as well.