The Weekly Hash, 4/19/2021: Coal-fired Chinese Hash Decline Drives Tx Fee Spike
Following recent coal mine accidents, China instituted blackouts for a “comprehensive power outage safety inspection.” This has resulted in observed Hashrate crashing to under 100EH/s, compared with a target Hashrate of ~169EH/s. This drove Transaction Fees (Tx fees) up to 23% of total miner rewards as the falling block count led to increased network congestion.
This dynamic contributed to a 5.9% week on week (WoW) decline in BTC price. Bitcoin reached an all-time-high of ~$63,500 midweek, and is currently trading at $55,300 as of this writing.
We estimate that lost Hashrate took more than 2GW of mining capacity offline and could take a week to recover, according to miner conversations. Interestingly, a number of miners told us they plan to remain in the Xinjiang region, waiting for the power supply to be restored. With the strong miner profitability we have documented in recent months, miners are unwilling to risk both lost production and potential equipment damage to save modestly on power costs in the (so far) annual move to Yunnan and Sichuan for the “Hydro season”. Revenue and margins are currently the healthiest they have been in years, and the incremental profitability may not be perceived as worth the risks associated with the move.
Bitcoin mining revenue reached $391/ PH/s per day and $424/MWh, as a result of Tx fees increasing substantially amid the Hashrate decline and ensuing congestion. The BitOoda North American Hash Spread™ gained 8.1% WoW from $371 to $401, with similar dynamics applying in China as well.
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. Bloomberg data shows a weighted average around the clock U.S. wholesale industrial power price of $22.98 / MWh, leading to an aggregate spread of $401 across 5 power markets. Note that power prices are highly variable, where New York zones see less than $10 / MWh in contrast to West zones exceeding $30 / MWh.
Older-generation S9-class devices, which are much more sensitive to price fluctuations, saw their Hash Spread™ gain ~6.0% to $96 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of about $287 / MWh.
Total BTC earnings per PH/s are ~6.93mBTC, up from ~6.00mBTC / PH/s last week on surging Tx fees. (1mBTC or milliBTC = 1/1000 BTC.) Tx fees rose ~1400 bps WoW to 23.1% of miner rewards, as we see major congestion in the “Mempool”, with 180k pending transactions. Fees are a key component of the recovering Hash Spread in the face of declining price.
Current mining economics leave a significant margin of safety for miners, who can absorb both power price and Bitcoin price fluctuations. In addition to the recovery of recently shut-down capacity, we continue to model long term growth in network Hashrate.
At the current observed Hashrate, it would take 99 MWh of power consumption per BTC mined. This translates into $3,056 in power expense per BTC mining with S19-class rigs, based on our current average North American power price. It costs $10,869 using S9 rigs, still an 80%+ margin, excluding labor. As a rule of thumb, we estimate labor costs to be (very) approximately $1000 / BTC for S19-class rigs, about $1500 for S17-class rigs, and $4000 for S9-class rigs.
•Just one region in China appears to contribute 2+ GW to the total ~7GW of Bitcoin mining capacity.
•Strong margins suggest a very muted “hydro season” for 2021.
•It costs $3000–10,000 of power cost to produce each Bitcoin, compared with a $55,300 price.
•News flow continues to be supportive of a long-term investment case for Bitcoin, with increasing acceptance of BTC both as an investment / inflation hedge as well as for payments.
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