The Weekly Hash, 2/24/21: Power Prices Normalize as Texas Warms Up — But Who Gained From the Deep Freeze?
Bitcoin faced another volatile week, rising 1.2% week on week (WoW) but falling from an all-time high of $58,350 to end at $48,560 at midnight UTC on 2/23. The selloff was sparked by comments from Elon Musk on reflation concerns, the steepening US 30 -10 Yr yield curve, and the debate about whether Bitcoin is a risk-on or risk-off asset driving trading volatility.
After the great Texas freeze last week drove power prices to the $9000/MWh cap, power prices have normalized this week.
Despite the resulting recovery in Hash Spreads™, network Hashrate took longer to recover, though it is tracking a record 175EH/s today, well ahead of the 155EH/s target Hashrate set last Friday 2/19.
Total BTC earnings per PH/s are ~7.13BTC, up from ~6.84mBTC / PH/s last week on higher Tx fees. (1mBTC or milliBTC = 1/1000 BTC.) Transaction Fees (Tx fees) rose 507 bps week-on-week (WoW) to 18.8% of miner rewards. Pending transactions in the “Mempool” have grown, driving congestion, with average transaction fees now exceeding $27.
Bitcoin mining revenue rose to $346 / PH/s per day and $378/MWh, as price increases combined with higher Tx fees.
The BitOoda North American Hash Spread™ recovered from negative $1030 / MWh to a recent high of $358 WoW as Ercot power prices normalized.
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 around the clock U.S. wholesale industrial power price of $20.80 / MWh, leading to an aggregate spread of $358 across 5 power markets.
Older-generation S9-class devices, which are much more sensitive to price fluctuations, saw their Hash Spread™ gain a solid 106% to $86 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of about $256 / MWh.
The average price we use in the Hash Spread™ is heavily influenced by current pricing in Texas: West Hub is currently at $2.13 /MWh. This low pricing speaks to continued imbalances in the market as well as the impact of the current balmy weather on both generation resources in West Texas and demand.
Miners who were able to sell-back their power during the freeze last week made thousands of dollars per MWh over the course of 2–3 days. They could effectively lower their average power cost by $0.60-$1.00 per Mwh for the year for every hour they could curtail and sell-back to the grid. However, we believe some miners are powered by generating resources that went completely offline — meaning there wasn’t power available to sell back to the grid, so this extreme weather may not have been as lucrative even for some miners with the right power purchase agreements.
Outdated, not Obsolete: Mining is strongly profitable, even with outdated rig classes.
Weather disruptions could have been very profitable for Texas miners last week — but it is unclear how many were able to take advantage of the opportunity.
Despite recent volatility and the ongoing debate about the role of Bitcoin in a portfolio, we note the debate appears to be steadily shifting away from whether Bitcoin has a role to what role it has in a professional investment portfolio. This can only be supportive of long-term price growth, even from current levels, amid ongoing fund and corporate allocations to the asset class. 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.