The Weekly Hash, 12/14/20: Price outpaces Hashrate to drive ongoing strong mining economics
Bitcoin’s price consolidated last week, dipping 1% to $19,156, while network Hashrate climbed 14.5% to 148.3EH/s. Difficulty reset down 2.6% to 18.67T, resulting in a target Hashrate of 133.5EH/s. Total BTC earnings per PH/s are now ~7.01mBTC / PH/s, up slightly from 6.92mBTC last week. (1mBTC or milliBTC = 1/1000 BTC.)
Transaction Fees (Tx fees) fell 136bps week-on-week (WoW) to 3.8% of miner rewards. Since the halving on 5/12/2020, the correlation between daily blocks mined and Tx fees as a % of total mining rewards has been -69%, strongly supporting the view that rising network congestion, largely driven by falling aggregate block space when block count falls, is a strong predictor of rising Tx fees.
Bitcoin mining revenue edged up per PH/s and per MWh this week, with the difficulty reset aiding revenue despite easing price and Tx fees.
Daily revenue per PH/s gained $0.25 / day to $134.2 vs. a week ago. Daily revenue per MWh is ~$146.7 using the latest-generation S19-class rigs, up $0.28 from $146.43 on 12/7. Our power consumption estimate is still about 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™ rose 0.3% WoW to $112.
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 $34.57 / MWh, leading to an aggregate spread of $112 across 8 power markets, which is fractionally higher than 12/7.
Older generation S9-class devices saw their hash spread climb 1% WoW to $6.68 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of over $72 / MWh.
Hash Spreads™ are driven by BTC price, Difficulty, and Power prices. The key question for spreads and miner economics is the inverse relationship of price and Difficulty. As Difficulty and network Hashrate rise, miners earn fewer BTC for their unit of Hashrate. As price rises, the BTC they do earn is worth more, but also, as price increases, it drives an increase in Difficulty / Hashrate. Older equipment becomes profitable at higher power prices, so previously mothballed rigs get turned back on. In addition, stronger profitability drives both internal cash generation and additional investment to fund the growth of new mining capacity.
While Hashrate growth cannot be accelerated meaningfully due to supply chain constraints, the ASIC vendors like MicroBT and Bitmain maintain a robust order book and are sold out of production through summer 2021.
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.
We continue to believe Hash Spreads™ may be range bound 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 email@example.com to discuss how we can help manage your risk.