The Weekly Hash, 2/16/21: Bitcoin breaks $50k; power prices surge in bitter winter weather, leading to widespread curtailment
Bitter winter weather led to ongoing rolling blackouts, surging power prices and curtailment in Texas and elsewhere. Around the clock, power price in Ercot West Hub hit over $6940 per MWh, with our multi-region North American average hitting $1469 / MWh this morning. Over the past 10–12 days, New York ISO prices climbed from the mid $20s to the high $50s in the North / Central zones, and in the Indiana Hub to ~$220 / MWh.
Power and Natural Gas markets are undergoing significant disruptions. Natural Gas prices are under $6/million BTU on both the east and west coasts of the US and just $1.40 / mmBTU in the Bakken, but $155-$220 in the Midwest, West, Rockies and Midcontinent. Flows across several markets have ground to a halt, further affecting generating capacity in the region, as this chart from Bloomberg illustrates:
We estimate Bitcoin mining revenue at ~$348 / MWh, so it is still profitable to mine BTC across most of the US — if you are able to access power and / or your Power Purchase Agreement (PPA) protects you on price. Bitooda estimates that the US accounts for approximately 15–18% of worldwide hashpower, and that potentially a third to half of US hashpower may be offline at the moment. This is consistent with the 123 blocks that were mined in the last 24 hours, and an observed Hashrate of 131EH/s vs. the target Hashrate of 153EH/s. Mining revenue per PH/s is currently $318 daily.
Miners whose PPAs permit the sale-back of power to the grid when curtailed stand to benefit significantly. If you can get paid $6900 / MWh not to produce $348 worth of Bitcoin, this is a major windfall of almost 20 hours worth of Bitcoin mining revenue for every hour of production downtime.
Our previous Difficulty reset estimates are likely too aggressive: Difficulty is tracking a +1.5–1.6% reset this Friday, but any persistent power curtailments could easily result in a moderate downward reset.
Bitcoin rallied 4.3% last week, ending at $48,110 at midnight UTC on 2/15 before rising further to cross $50,000 for the first time intraday this morning. News flow remains very supportive with broadening institutional adoption, but is currently overshadowed by disruptions in the power and natural gas markets. Total BTC earnings per PH/s are ~6.61mBTC, down from ~6.67mBTC / PH/s last week, on lower transaction fees (1mBTC or milliBTC = 1/1000 BTC). Although Tx Fees fell 78bps WoW to 11.3% of total miner revenue, we assess they will rise in the near term because of network congestion caused by the falling block count. Bitcoin mining revenue rose to $308 / PH/s per day and $336/MWh, as price increases combined with higher Tx fees.
The BitOoda North American Hash Spread™ remains positive for much of the US, but collapsed to a negative $1030 / MWh on average on the massive surge in Ercot power pricing, aided by the broader trend of rising prices.
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.
We estimate that the Bitcoin mining network currently consumes about 7.7GW of power, with curtailments driving the decline, although, as we have noted previously, luck may play a role in accounting for the 700MW change in estimated power consumption WoW.
It takes $4775 in power expense to mine 1 BTC using S19 rigs, and $17000 using S9 rigs at an average power price of $35, though clearly a lot more in North America if a miner’s power price floats, assuming no curtailment. This excludes labor costs of approximately $4–6 per MWh of installed / operational capacity, regardless of whether it is currently running or has been curtailed.
The current weather conditions have led to a temporary reduction in Bitcoin mining capacity in Texas and parts of the Midwest / Great Plains on significant power price surges.
The importance of robust power purchase agreements cannot be gainsaid. Miners in Texas who get paid to release their demand back to the grid at market rates could receive almost 20 hours worth of Bitcoin revenue for every hour of downtime.
Miners who get curtailed without getting paid for it are relatively disadvantaged, as other (minor) operating expenses and capital costs and charges continue despite zero revenue.
Long-term price growth, even from current levels, is supported by news flow surrounding accelerating fund and corporate allocations to the asset class. While investors need to navigate price and difficulty risk that can pose existential threats to unhedged mining operations, we are optimistic about the long-term outlook for well-capitalized, appropriately-hedged businesses with the right power purchase agreements and hedging strategies.
Email us at email@example.com to discuss how we can help manage your risk or gain exposure to the space.