The Weekly Hash, 9/13/21: Volatility Continues With Drop to $44,000

Bitcoin dropped 10.8% week-on-week (WoW), settling at $46,180 as of midnight UTC on 9/12. As of this morning, spot dropped further to around $44,000. News flow in the space continues to accelerate, with institutional growth underscored by plans for Coinbase to raise $1.5 billion in a private offering, and Fidelity Digital Assets to raise headcount by as much as 70% by year end. Meanwhile, fund flows into the space remain positive, according to Coinshares data, with Bitcoin and Ethereum representing the bulk of YTD inflows.

El Salvador, which recently made Bitcoin legal tender, continues to expand its crypto friendly regime with an announcement that Bitcoin gains will not be taxable, which we assess is at least partially motivated by an effort to bolster foreign investment.

Meanwhile, in the US, regulatory pressures continue to mount, with a possible review of stablecoins by the Financial Stability Oversight Council. At BitOoda, we strongly believe that regulatory clarity advances the space by creating investor protection frameworks and defining the boundaries within which compliant, regulated firms can innovate.

Total BTC earnings per PH/s are ~6.89 mBTC, down from ~7.21 mBTC / PH/s last week following the difficulty reset and lower Tx fees (1mBTC or milliBTC = 1/1000 BTC). Transaction fees dropped 8 bps WoW to 0.9% of miner rewards, or 0.06 BTC per block, with only 10,000 pending transactions in the “Mempool”.

Bitcoin mining revenue fell to $318 / PH/s per day and $347/MWh on price decreases.

The BitOoda North American Hash Spread™ dropped 17.3% from $372 to $308. This is the result of the drop in spot, compounded with a significant national average power price increase (~$34 last week). 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 $39.03 / MWh leads to an aggregate spread of $308.

Older-gen S9-class devices saw their Hash Spread™ down ~27% to $59/MWh. S17-class devices, the bulk of the installed base, saw a hash spread of about $215/ MWh.

The 133 MWh required to mine 1 BTC with S19-class rigs translates into $5,190 in power expense. It costs $18,449 using S9 rigs, a ~60% margin, excluding labor. Thus, power costs range from 10–40% of revenue, depending on the hardware generation in use.

Current Bitcoin price allows strong margins capable of absorbing spot and power price fluctuations, even using older-gen S9 rigs. Direct labor costs in the US equate to about $7–10 per MWh at scale, but significantly more for small operations that still need to staff for just a few MW of capacity.

Takeaways

We view the current news flow across the space, including around regulation, as supportive of institutional adoption of Bitcoin

Strong margins make mining an attractive means of gaining Bitcoin exposure at lower levels

We assess this presents an opportunity for US-based miners to deploy institutional capital towards acquiring capacity and gain share of network hash

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