The Weekly Hash, 6/23/21: China’s Ban Could Drive Hash Below 85EH/s

China’s mining ban is moving forward aggressively, resulting in falling Hashrate: block times are now over 15 minutes, which imply a 97EH/s observed Hashrate. Not all Chinese miners are offline, although most are. We view the next difficulty reset as likely to be on July 3rd, with the target Hashrate dropping to ~105EH/s. The subsequent reset will likely result in a further ~20% drop in target Hashrate to 85 EH/s around July 19/20th.

We will be updating our longer-term Hashrate forecasts in the coming days: the market has shifted from being semiconductor constrained to being power / infrastructure constrained. Given the long lead times on the infrastructure side, we believe it would take several quarters for the infrastructure deployment to be complete. As a result, Hashrate will likely be below our prior forecasts for the next ~10 quarters.

Trading restrictions in China are combining with the mining ban to pressure BTC prices. The key driver of China’s actions is capital control — and control, more generally. Mining allows Chinese players to convert RMB into BTC, and subsequently into currencies outside China’s governmental control. It therefore follows that miners probably will not be permitted to relocate their equipment out of China, which effectively would only reduce future capital control evasion but give a pass on prior evasion or compounded growth in external capital from that prior evasion.

Bitcoin fell 19.5% to $32,395 as of 6/22 midnight UTC, after recently reaching below $30,000. Despite the falling prices, miner economics are actually improving because of the higher Bitcoin flow per PH/s. Furthermore, we believe equipment prices should fall significantly over the next few months, with the shortage of sites into which to plug future deliveries; this should also accelerate an upgrade cycle of still-profitable S9 or S17 equipment to latest-generation rigs.

Total BTC earnings per PH/s are ~6.84 mBTC, up from ~6.60 mBTC / PH/s last week. (1mBTC or milliBTC = 1/1000 BTC.) Transaction fees rose 332 bps WoW to 7.8% of miner rewards, or 0.53 BTC per block, with relatively low congestion levels in the “Mempool.”

Bitcoin mining revenue dropped to $222 / PH/s per day and $240/MWh as the price decrease and improved BTC flow / PH/s from the ongoing China mining ban eliminated a large portion of the network. This will improve significantly at the next reset.

Correspondingly, the BitOoda North American Hash Spread™ rose 1.2% WoW from $214 to $217. 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. The weighted average around the clock U.S. wholesale industrial power price (5 markets) of $23.21 / MWh lead to an aggregate spread of $217.

Older-gen S9-class devices saw their Hash Spread™ up to $44/MWh. S17-class devices, the bulk of the installed base, saw a hash spread of about $152 / MWh.

The 135 MWh required to mine 1 BTC with S19-class rigs translates into $3,130 in power expense. It costs $11,132 using S9 rigs, still a 65%+ margin, excluding labor.

Takeaways

The big story right now is falling Hashrate due to Chinese regulatory actions and crypto bans

Chinese miners are seeking sites to which to direct future equipment deliveries, but infrastructure bottlenecks will lead to 2+ years of better mining economics relative to our prior estimates

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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