The Weekly Hash, 12/21/20: Where’s the Hash? Stagnant Hashrate despite 23% price increase in a week
Bitcoin’s price gained 23% last week to $23,529 from $19,156 the previous week, while network Hashrate dipped 5.5% to 140EH/s. The next Difficulty reset, expected on December 27, is currently on track for a modest increase. Total BTC earnings per PH/s are now ~7.27mBTC / PH/s, up slightly from 7.01mBTC last week. (1mBTC or milliBTC = 1/1000 BTC.)
Transaction Fees (Tx fees) climbed 343bps week-on-week (WoW) to 7.2% of miner rewards. Since the halving on May 12, the correlation between daily blocks mined and Tx fees as a % of total mining rewards has been negative 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. Illustrating the point, just 129 blocks were mined on 12/17, and Tx fees rose to 16.9%.
Bitcoin mining revenue shot up to $171 / PH/s and $187 / MWh on robust price performance.
Daily revenue per PH/s gained $37 / day vs. a week ago, while daily revenue per MWh gained ~$40 using the latest-generation S19-class rigs.
The BitOoda North American Hash Spread™ rose 30% WoW to $146.
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 $40.96 / MWh, leading to an aggregate spread of $146 across 8 power markets, which is 30% higher than 12/14.
Older generation S9-class devices saw their hash spread climb 70+% WoW to $11.58 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of over $95 / MWh.
Where’s the Hash? We are surprised by the benign Hash and Difficulty environment at the moment. The Hash spreads are the strongest since summer 2019 — we would expect Hashrate to be higher on the back of S19-class deliveries but also, older S9-class devices are now earning revenue of $52.55 per MWh. We would expect miners with power costs up to $50 / MWh or 5c / kWh — which is most miners globally (see our prior research here) — to be running as many S9-class devices as they can. Mothballed capacity should be coming online.
In addition, shipments of new S19-class devices from both Bitmain and MicroBT continue, despite delivery delays. Finally, prior-generation devices such as T17s, S17s, M20s, and AvalonMiners 1047, 1066, 1146 and 1166 are all profitable and should be contributing to a growing network Hashrate. Our conversations with miners suggest that the pace of expansion is not slowing, and ASIC vendors MicroBT and Bitmain remain sold out through summer 2021. The strong BTC price supports both internal cash generation and is attracting new capital into the space to fund expansion. So — where’s the Hash? Or it might be more appropriate to ask — When’s the Hash?
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.
We expect Hashrate to climb significantly in the weeks and months ahead, and are surprised the target Hashrate is not already at 150–160EH/s.
Therefore, 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.