The Weekly Hash, 9/20/21: Bitcoin Drops to $43,500 on Risk Off Trade

Bitcoin dropped ~8% overnight on a broad market selloff, following a 4.9% week-on-week (WoW) gain to midnight UTC on 9/19. Overnight fears of contagion spreading from Evergrande in China, as well as the Fed meeting, debt ceiling and increasing focus on a “fiscal taper” ahead of the Fed taper are causing a global selloff in risk markets — US equities are down 1.5% with tech leading the selloff, while Europe is down 1–2%, Asia is mostly down, and commodities are down, with the notable exceptions of gold and natural gas. Treasury yields are down as well, while high yield widened. As we have discussed before, Bitcoin is not insulated from a risk off move; in fact, the correlation of Bitcoin to the S&P 500 on the 30 worst days of the S&P (a proxy for a risk off trade) is 45.2% since Bitcoin’s inception.

Within the crypto asset class, Bitcoin is off less than most of its peers: investors view Bitcoin as a higher quality risk exposure than alt coins, in our view. This is despite the fact that the Bitcoin investor base is more institutional than altcoins (although we acknowledge that the entire asset class is largely retail and individual investor driven).

Total BTC earnings per PH/s are ~6.88 mBTC, down from ~6.89 mBTC / PH/s last week on decreased Tx fees (1mBTC or milliBTC = 1/1000 BTC). Transaction fees dropped 11 bps WoW to 0.8% of miner rewards, or 0.05 BTC per block, with moderate congestion levels in the “Mempool” which currently holds 11,500 pending transactions.

Bitcoin mining revenue rose to $325 / PH/s per day and $355/MWh as of midnight, though it is currently down week-over-week on the morning price fall.

The BitOoda North American Hash Spread™ rose 1.3% from $308 to $312. 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 $42.46 / MWh leads to an aggregate spread of $312.

Older-gen S9-class devices saw their Hash Spread™ down ~2% to $57/MWh. S17-class devices, the bulk of the installed base, saw a hash spread of about $217/ MWh.

It now takes 133MWh to mine 1 BTC using S19-class rigs, while S17-class machines would consume 211 MWh, and S9-class, 378MWh.

The 133 MWh required to mine 1 BTC with S19-class rigs translates into $5,654 in power expense. It costs $20,095 using S9 rigs, a ~57% margin, excluding labor.

Takeaways

Bitcoin and crypto generally are selling off along with the broader markets in a global risk off trade where most assets are down, with the flight to safety shoring up gold and treasuries

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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