The Weekly Hash, 11/23/2020: Rising Hash, Falling Fees: Are Hash Spreads™ Peaking?
The Bitcoin Network is on track to deliver a 10–12% increase in Difficulty by Nov 28/29. This would set Difficulty at the second highest level ever and drop daily block rewards to ~6.4mBTC / PHs, down from the current 7.15mBTC. (1mBTC or milliBTC = 1/1000 BTC.)
Transaction Fees (Tx fees) are now 2.9% of miner rewards, down 146bps week-on-week (WoW). Daily blocks mined have been robust, with 174 blocks mined yesterday, which equates to faster transaction throughput and confirmation times, while Tx volumes haven’t kept up with higher capacity. The empirical evidence supports our thesis that transaction fees would fall with declining congestion.
Bitcoin mining revenue fell this week, despite the higher BTC price.
Bitcoin price was up 15.6% on the week, ending at $18,483 as of midnight UTC on 11/22 vs. $15,987 a week ago. Hashrate is up 21% WoW to over 152 EH/s. We continue to research methods to suppress the impact of luck on daily estimates of observed Hashrate and get closer to the underlying, unobservable “true” Hashrate.
Daily revenue per PH/s fell $2 / day to $136 vs. our 11/18 report, with the higher BTC price offset by lower Tx fee revenue. Daily revenue per MWh is $148.6 using the latest-generation S19-class rigs, off from $151 on 11/18. Our power consumption estimate is at 7.5GW (though that is susceptible to luck and errors in estimating equipment mix based on conversations with miners and suppliers).
The BitOoda North American Hash Spread™ is now $116, with declining revenue / MWh offset by a falling power price.
We define the BitOoda Hash Spread™ as the difference between the cost of power per MWh and the Bitcoin mining revenue per MWh. This gives miners a quick sense of the surplus generated by their business to cover personnel, overhead, depreciation, and profit. EIA data shows a weighted average peak/off-peak U.S. wholesale industrial power price of $32.52 / MWh, leading to an aggregate spread of $116 across 8 power markets, ~$2 wider than 11/18.
Even older generation S9-class devices now have a positive hash spread of $9.3 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of $76 / MWh.
Hash Spreads™ may be peaking in the near term. At current prices, revenue / MWh could fall to ~$133 by 11/29, which could take the S19-class Hash Spread™ down to ~$100. S9-class Hash Spread™ could drop 48% to $4.79 /MWh.
We do not make any attempt to model out Bitcoin prices at this time, although we note news flow in the institutional investor space is uniformly supportive of long-term price appreciation. Appreciation would be necessary to sustain the current level of Hash Spreads™ in the face of continued growth in Hashrate and Difficulty. While Hashrate growth cannot be accelerated meaningfully due to supply chain constraints, we believe that the ASIC vendors like MicroBT and Bitmain maintain a robust order book, keeping our prior projections of 260EH/s of network Hashrate by Summer 2021 intact.
As we noted, although BTC price appreciated 15.6% WoW, the Hash Spread™ only expanded because of a falling power price. Thus, any miner with fixed-price power contracts at any purchase price would have seen a deterioration in economics last week, with further weakening anticipated next week — a key reason we continue to advocate that miners take some risk off the table while locking in still-robust returns.
Hash Spreads™ may be peaking because of sustained Network Hashrate growth, despite equipment supply constraints.
Mining power consumption of 7.5GW is well below capacity, further supporting Hashrate growth and allowing room for older-generation rigs to operate when Hash Spreads are positive.
We continue to advise clients to take some risk off the table while locking in advantageous levels of revenue / PH/s and MWh. Email us at email@example.com to discuss how we can help manage your risk.