The Weekly Hash, 3/1/21: China’s crypto mining ban may support rig availability for North American miners

Bitcoin dropped 21.1% week on week (WoW), falling from $57,501 to end at $45,359 at midnight UTC on 2/28. The just-announced crypto mining ban in China’s Inner Mongolia may account for some of the ~8% price recovery to ~$48,900 today. We suspect that part of the motivation is to close the BTC miner loophole circumventing capital controls on Chinese citizens’ overseas wealth. If this thesis plays out, we would expect to see mining bans expand to other regions, along with increased mining equipment supply in both the primary and secondary markets — used rigs getting shipped out of China and reduced deliveries of new equipment into China, which would help ease the current bottlenecks.

The overall crypto backdrop remains constructive, with Coinbase’s planned direct listing and its recent SEC S-1 filing underscoring how Bitcoin is becoming an important element of both retail and, increasingly, institutional portfolios. Recent news from Citi and Goldman is also supportive of this adoption thesis.

Total BTC earnings per PH/s are ~6.37mBTC, down from ~6.72mBTC / PH/s last week on lower Tx fees. (1mBTC or milliBTC = 1/1000 BTC.) Transaction Fees (Tx fees) fell 236 bps week-on-week (WoW) to 9.2% of miner rewards, although we continue to see over 113k pending transactions in the “Mempool,” which could drive further growth in average Tx fees as block times have extended — just 131 blocks were mined yesterday, which is typically correlated with rising fees.

Bitcoin mining revenue dropped to $289 / PH/s per day and $316/MWh, as both the spot price and transaction fees decreased.

The BitOoda North American Hash Spread™ fell 21.2% WoW from a high of $381 to $300.

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 $15.80 / MWh, leading to an aggregate spread of $300 across 5 power markets.

Older-generation S9-class devices, which are much more sensitive to price fluctuations, saw their Hash Spread™ fall ~15% to $73 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of about $215 / MWh.

We estimate that the Bitcoin mining network currently consumes about 6.3GW of power. The decrease in power consumption from a recent mid-February high of ~8GW could be at least partially attributed to China’s mining ban.

Today’s Hashrate of ~146 EH/s implies ~136 MWh power consumption per Bitcoin mined using S19 rigs, and substantially more if using older generation equipment. This leaves a significant margin of safety for miners, who can absorb both power price and Bitcoin price fluctuations, even as we expect total network Hashrate to continue to increase.

The 136 MWh consumed by S19 rigs to produce 1BTC translates to $2,268 in power expense, based on our current average North American power price. It costs $8,065 using S9 rigs, still an 80%+ margin, excluding labor of approximately $1000 per BTC on S19s.

Takeaways

A mining ban in China could improve the availability of mining equipment for North American miners.

Despite the drop in Bitcoin price, mining is strongly profitable, even with outdated rig classes.

We are optimistic about the long-term outlook for Bitcoin, underscored by Coinbase’s direct listing plans and support from Citi, Goldman, and JPMorgan for client allocations to and trading of Bitcoin.

Email us at info@bitooda.io to discuss how we can help manage your risk or gain exposure to the space.

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