The Weekly Hash, 4/26/2021: Volatile Price Action, Tx Fees Normalize

Bitcoin fell 4.2% week on week (WoW), recovering from a dip yesterday to ~$47,000 back to $53,450 at the time of writing. The network currently tracks 131 blocks mined in the last 24 hours and is on track to deliver a 14–16% difficulty decline at the upcoming reset this weekend. While observed Hashrate has recovered from last week’s lows, it still lags behind the prior difficulty epoch average, suggesting not all Hashrate has returned. It is unclear whether this indicates partial restoration of power in Xinjiang, China, or of rigs in transit as miners seek to relocate some capacity either to the hydro regions of Sichuan and Yunan, or overseas to diversify risk.

Institutional adoption continues to broaden, with the JPMorgan announcement of a planned bitcoin fund for private wealth clients.

Total BTC earnings per PH/s are ~6.08mBTC, down from ~7.25mBTC / PH/s last week on Transaction fees (Tx fees) normalizing from the higher levels needed to offset the temporary loss in China’s Hashpower. (1mBTC or milliBTC = 1/1000 BTC.) Tx fees fell ~1400 bps WoW to 12.3% of miner rewards, as we see decreased congestion in the “Mempool” compared with last week, currently holding around 80k pending transactions.

Bitcoin mining revenue fell to $325 / PH/s per day and $352/MWh following the decrease in spot price and Tx fee reduction.

The BitOoda North American Hash Spread™ declined 19.3% WoW from $415 to $335 as BTC price weakened and power prices fell.

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 $17.25 / MWh, leading to an aggregate spread of $335 across 5 power markets.

Older-generation S9-class devices saw their Hash Spread™ fall ~18% to $82 / MWh, still retaining margins. S17-class devices, the bulk of the current installed base, see a hash spread of about $240 / MWh.

The current target Hashrate of ~165 EH/s implies ~151 MWh power consumption per Bitcoin mined using S19 rigs, and substantially more if using older-generation equipment. Current mining economics leave 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 151 MWh of power consumption per BTC mined translates into ~$2,600 in power expense mining with S19-class rigs, based on the current average North American power price. It costs $9,305 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.

Takeaways

•Bitcoin saw a selloff to $47,000 shortly after hitting new highs above $63,000.

•Mining margins remain healthy despite volatility.

•It costs $2,600–9,300 of power cost to produce each Bitcoin, compared with a $53,450 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.

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