The Weekly Hash, 6/28/21: Observed Hashrate Drops to ~64 EH/s, Benefitting American Miners, Hosts

China’s mining ban is moving forward aggressively, resulting in falling Hashrate: only 58 blocks were mined yesterday, with observed Hashrate at a yearly low of 57 EH/s. It appears that nearly all Chinese miners are now offline. We view the next difficulty reset as likely to be on July 3rd, with the target Hashrate dropping to ~95–100EH/s. The subsequent reset will likely result in a further drop in target Hashrate to 75–85 EH/s around July 19/20th.

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 will 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.

The key driver of China’s actions is capital control — and control more generally, in our view. Mining allows Chinese players to convert RMB into BTC, and consequently into currencies outside China’s governmental control. It therefore follows that miners may not be permitted to relocate their equipment out of China, which would not only reduce future capital control evasion but also give a pass on prior evasion or compounded growth in external capital from that prior evasion.

Bitcoin fell 3.1% week-on-week to $34,506 as of 6/27 midnight UTC, although it dipped below $29,000 during the week. 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 ~6.64 mBTC, up from ~6.52 mBTC / PH/s last week. (1mBTC or milliBTC = 1/1000 BTC.) Transaction fees rose 356 bps WoW to 6.9% of miner rewards, or 0.46 BTC per block, with moderate congestion levels in the “Mempool”. BTC earnings should rise significantly after the upcoming reset.

Bitcoin mining revenue rose to $229 / PH/s per day and $250/MWh as the price stood still and improved BTC flow / PH/s from the ongoing China mining ban which eliminated a large portion of the network. This will continue to improve in the short term as the market adjusts to the falling Hashrate.

The BitOoda North American Hash Spread™ fell 3.2% WoW from $227 to $220. 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 $29.76 / MWh leads to an aggregate spread of $220.

Older-gen S9-class devices saw their Hash Spread™ down 11% to $40/MWh. S17-class devices, the bulk of the installed base, saw a hash spread of about $153 / MWh.

The 138 MWh required to mine 1 BTC with S19-class rigs translates into $4,112 in power expense. It costs $14,622 using S9 rigs, still a 55%+ margin, excluding labor.

Takeaways

The big story right now is continuing Hashrate decline 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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