The Weekly Hash, 11/30/20: Hash Spreads™ Peaking in the Near Term

The Bitcoin network delivered a 9% increase in Difficulty on 11/29, close to our 10–12% estimate. This resulted in daily block rewards dropping to ~6.56mBTC / PH/s, nearly on par with our ~6.4mBTC / PHs estimate and down from 7.15mBTC last week. (1mBTC or milliBTC = 1/1000 BTC.)

Transaction Fees (Tx fees) edged up to 4.1% of miner rewards, up 120bps week-on-week (WoW). 150 blocks were mined yesterday, consistent with a moderate increase in difficulty. The empirical evidence supports our thesis that transaction fees would fall with declining congestion.

Bitcoin mining revenue fell 8.5% this week per PH/s and per MWh, although price was off just 1.6%.

Bitcoin price ended at $18,191 as of midnight UTC o,n 11/29 after running up to a closing price of $19150 intra-week. Price is subsequently up today, to over $18,900 at the time of writing. Hashrate is down ~11% WoW to 136 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 over $11 / day to $124 vs. a week ago, with the new difficulty reset impacting block rewards per PH/s. Daily revenue per MWh is $136 using the latest-generation S19-class rigs, off from $148.6 on 11/18. Our power consumption estimate is over 7GW (though that is susceptible to mining luck and errors in estimating equipment mix based on conversations with miners and suppliers).

The BitOoda North American Hash Spread™ fell to $104 from $116 a week ago.

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 $104 across 8 power markets, ~$12 lower than 11/23.

Older generation S9-class devices saw their hash spread drop 38% WoW to $5.74 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of $67 / MWh.

Hash Spreads™ appear to have peaked in the near term, though they are slightly higher than our estimates: a week ago we forecast the S19-class Hash Spread™ could dip down to ~$100, and the 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.

The BitOoda Hash Spread™ forecast is a key indicator of mining economics. With our long-term forecast for rising difficulty, miners would do well to hedge production and lock in returns, in our view.

Takeaways

Hash Spreads™ may have peaked because of sustained network Hashrate growth, despite equipment supply constraints. Further Hash Spread™ expansion could be dependent on price appreciating faster than new rigs come online.

Long term price growth is supported by news flow about traditional financial institutions creating or approving growing exposure to Bitcoin, so it makes sense for miners to seek long exposure to Bitcoin.

However, we continue to advise clients to take some risk off the table while locking in advantageous levels of revenue / PH/s and MWh to cover operating and debt service obligations. Email us at info@bitooda.io to discuss how we can help manage your risk.

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