The Weekly Hash, 6/14/21 — Chinese Mining Ban Impact on Ecosystem: Long Term Benefits for US Miners / Hosts

Bitcoin gained 9% to $38,925 as of 6/13 midnight UTC, and has continued to appreciate today. Tom’s Hardware and other sources reported on miner approval of the “Taproot” update in the previous difficulty epoch — a positive development, by our assessment. The update is set to take place in November and aims to improve privacy and efficiency, and most importantly, enable the potential for smart contracts.

The Chinese government continues to crack down on cryptocurrencies and mining. The latest orders restricting mining in parts of Yunnan province are in part to improve enforcement of capital controls, improve RMB currency protections, and strengthen the use case for the digital Yuan.

We expect Hashrate to continue to fall over the next several months: we estimate that China accounts for about 50% of global Hashrate, and most of that will likely go offline over the next few months, as we noted on 5/26. Hashrate has fallen in two consecutive epochs, with a potential to fall below 100 EH/s if the ban is fully implemented. While miners in China and around the world have large shipments on order, we believe there is now a shortage of transformers and substations and other long-lead-time infrastructure that will make powering the expected future shipments challenging — apart from any existing mining equipment that may be able to be taken out of China. This makes for improving miner economics, with improving Bitcoin flow / PH/s, as well as the potential for falling equipment prices.

The recent difficulty reset on 6/13 saw target Hashrate falling roughly 5.3%, with block counts and observed Hashrate 30–50 EH/s below target during the last few days of the prior epoch. This points to likely further target rate declines at the next reset.

Total BTC earnings per PH/s are ~6.48 mBTC, up from ~6.13 mBTC / PH/s last week. (1mBTC or milliBTC = 1/1000 BTC.) Transaction fees rose 29 bps WoW to 2.7% of miner rewards, or 0.17 BTC per block, with low congestion levels in the “Mempool.”

Bitcoin mining revenue increased to $252 / PH/s per day and $274/MWh due to the slight price recovery, and the Sunday reset drove improved BTC flow / PH/s.

Correspondingly, the BitOoda North American Hash Spread™ rose 16% WoW from $211 to $245.

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 $28.65 / MWh, leading to an aggregate spread of $245 across 5 power markets.

Older-gen S9-class devices saw their Hash Spread™ up 19% to $48 / MWh. S17-class devices, the bulk of the installed base, saw a hash spread of about $171 / MWh.

The 142 MWh required to mine 1 BTC with S19-class rigs translates into $4,077 in power expense. It costs $14,499 using S9 rigs, still a 60%+ margin, excluding labor.

Takeaways

Bitcoin prices are benefiting from the approval of the Taproot upgrade, which should drive longer term growth and adoption of Bitcoin

The big story right now is Chinese crypto regulations and bans: these will drive down network Hashrate, and it will take 2+ years to return to our previous forecast levels due to infrastructure bottlenecks

We assess this presents an opportunity for US-based miners to gain share and acquire rigs and new hosting customers at attractive terms

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