The Weekly Hash, 5/17/2021: Moving Parts: Price Volatility, Hash Migration, Bitcoin Energy Consumption

Bitcoin sold off 21% to $46,023 as of 5/16 midnight UTC, dropping as low as $42,700, following tweets related to Tesla no longer accepting Bitcoin and potentially selling its BTC stake due to concerns about energy consumption, transaction speeds, and costs. To add to the noise, Elon Musk stated Tesla is still holding its BTC.

None of the arguments is new: Bitcoin is indeed energy intensive, although a growing plurality of its energy usage is both renewable/carbon-neutral and contributes to grid stabilization — which can help operators achieve renewable production goals — or flare mitigation purposes. While some computing applications can and will eventually achieve similar positive externalities, they are not mature enough yet. Computing applications require high bandwidth and cannot be easily rerouted as intermittent data centers come online and go offline unpredictably. We further note that stored-energy solutions for intermittent generation are also still in their early stages and ultimately are a cost item, not a revenue item. Bitcoin is NOT green — but it is getting steadily greener.

Hashrate has generally been ~10% lower since the last reset on 5/13, tracking around 160EH/s vs. a target of 179.3 EH/s. We assess this might be due to Chinese miners targeting their annual wet season migration from the northern coal region to the hydro-rich Sichuan/Yunnan regions for after the reset, when lost production of BTC / PH/s is substantially lower than during the last difficulty epoch.

Total BTC earnings per PH/s are ~5.35 mBTC, down from ~6.47 mBTC / PH/s last week. (1mBTC or milliBTC = 1/1000 BTC.) Transaction fees rose 47 bps WoW to 6.1% of miner rewards, or 0.33 BTC per block, with moderate congestion levels in the “Mempool.”

Bitcoin mining revenue decreased to $246 / PH/s per day and $267/MWh due to the higher target Hashrate, slightly higher transaction fees and the lower spot price.

Correspondingly, the BitOoda North American Hash Spread™ fell 36.2% WoW from $390 to $249.

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 $17.53 / MWh, leading to an aggregate spread of $249 across 5 power markets.

Older-gen S9-class devices saw their Hash Spread™ fall 40.5% to $57 / MWh. S17-class devices, the bulk of the installed base, saw a hash spread of about $177 / MWh.

The current target Hashrate of ~179 EH/s implies ~173 MWh power consumption per Bitcoin mined using S19 rigs, and substantially more using older-generation equipment. This translates into ~$3,025 in power expense mining with S19-class rigs. It costs $10,756 using S9 rigs, still a 75%+ margin, excluding labor.

Takeaways

Recent price volatility is being driven by old concerns at a time when mining is steadily becoming greener

We believe the recent drop in Hashrate is driven by an opportunistically delayed wet season migration to the low cost Sichuan region that is now underway

While the pace of mining rig shipments is picking up, semiconductor / supply chain delays remain a bottleneck

Recent volatility reinforces our support for hedging tools to mitigate project risk for miners, although mining remains an attractive way to gain Bitcoin exposure

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